Reuters: US Dollar Report: FOREX-Yen bears retreat as Bank of Japan makes no policy change

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FOREX-Yen bears retreat as Bank of Japan makes no policy change Jun 11th 2013, 06:38 Tue Jun 11, 2013 2:38am EDT * Yen firms vs dollar, euro after no new BOJ measures * Aussie slumps to $0.9381, lowest since Sept 2010 By Sophie Knight TOKYO, June 11 (Reuters) - The yen was jolted higher on Tuesday as investors unwound their short yen positions after the Bank of Japan offered no further easing steps and made no mention of measures to curb recent market volatility and rising government bond yields. The dollar sank as low as 97.78 yen before paring losses to 98.11 after the BOJ held off from extending the maximum duration of its fixed-rate loans to two years from one year, a measure some had been hoping for. The Bank of Japan did, however, revise up its assessment on exporters and output, and said Japan's economy was picking up. It also announced a plan to disperse 3.25 trillion yen ($32.8 billion) of loans to 70 financial institutions on June 20. "I think foreign investors expected some kind of policy response to higher JGB yields, even though domestic investors weren't betting on much," said Kyosuke Suzuki, director of FX at Societe Generale in Tokyo. "When Kuroda moves, he moves boldly ... he doesn't make tweaks as he goes along. The 10-year bond yields haven't held above 1 percent yet and until they do I think the BOJ are unlikely to change policy," Suzuki added. Although BOJ Governor Haruhiko Kuroda said the massive easing programme he unleashed on April 4 was aimed at bringing down yields across the curve, the opposite has happened. After initially dropping to 0.375, the benchmark yield jumped to 1.000 percent on May 23, its highest in more than a year. On Tuesday, it was last at 0.865. The yen's gains knocked the dollar index down 0.1 percent to 81.753 , a day after St. Louis Fed President James Bullard said low inflation meant the central bank could stick to its aggressive stimulus programme. The dollar's trajectory over the last month has been driven by speculation of whether the U.S. Federal Reserve will taper its bond-buying programme earlier than scheduled. Positive data increases those expectations, which leads to dollar buying as QE3 is seen as negative for the currency. "The dollar seems to be consolidating across the board following the sharp sell-off last week. We think that renewed bets on Fed tapering should keep the greenback supported going into the FOMC meeting on June 19," wrote Valentin Marinov and Osamu Takashima, G10 FX strategists at Citi, in a note. "We suspect that the contrast between the very dovish BOJ and the more neutral Fed could continue to provide USD/JPY with support." Indeed, the dollar-yen stayed some way off a two-month low around 94.48 it plumbed on Friday. The euro was also well clear of Friday's one-month low of 126.19 yen, despite losing 0.4 percent to 130.28 on Tuesday. Against the dollar, the single currency was slightly higher than late U.S. levels at $1.3270, having touched a 3-1/2-month high of $1.3306 on June 6. It has gained 2 percent so far this month. Minori Uchida, chief FX analyst at the Bank of Tokyo-Mitsubishi UFJ, said that Italian and Spanish bond yields coming off dangerously high levels had helped to underpin the euro's recent strength, in contrast to the Australian dollar. The Australian dollar plumbed $0.9381, its lowest level since September 2010, after breaking through support at its 2011 trough of $0.9388. The move came after Goldman Sachs joined a growing number of analysts who have downgraded the Aussie since the beginning of its 9-percent fall from near $1.0400 in early May. It last bought $0.9408. "The Aussie used to be bought up whenever problems erupted in the euro zone. But now that Europe has calmed down somewhat, there is no longer that incentive to buy the Aussie, so it's likely to remain weak for a while," Uchida said. Goldman Sachs now has a 12-month target of $0.8500, down from $0.9000 previously. On a three-month view, it sees the Aussie at $0.9200, down from $0.9700. The brokerage also lowered its 2013 growth forecast for Australia to 2 percent from 2.4 percent. Currency bears took a swipe at the Aussie on Monday after a batch of data over the weekend showed economic growth in China, Australia's single biggest export market, could slow further in the second quarter. Link this Share this Digg this Email Reprints

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