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Yen hits 4-month low vs dollar; Aussie under pressure

Dated Posted: 2013-11-22

The yen fell to a four-month low versus the dollar on Friday, with the low-yielding Japanese currency pressured by signs of improving risk appetite and contrasting outlooks for monetary policy.

Investors also dumped the Australian dollar after the country's central bank chief said he was "open-minded" about intervening to weaken the currency.

The euro rose to 136.54 yen, its highest level since October 2009, while the dollar scaled a four-month high of 101.36 yen, nearing its July peak of 101.54 yen.

There was little reason for investors not to continue using the yen as a funding currency for carry trades after the Bank of Japan stayed committed to its ultra-loose monetary policy on Thursday.

In addition, there are expectations that the BOJ might add to its monetary stimulus in coming months to achieve its 2 percent inflation target and to offset the fiscal drag from an increase in the sales tax next April.

BOJ Governor Haruhiko Kuroda reiterated on Friday that the central bank stood ready to make necessary adjustments if risks to the economy threatened its inflation goal.

By contrast, while there is uncertainty about when the U.S. Federal Reserve will start scaling back its bond-buying stimulus, many market players expect the Fed to begin tapering around March 2014, and possibly even sooner.

Minutes from the Fed's October policy meeting released on Wednesday showed that policymakers felt there was room to begin scaling back the $85 billion monthly bond purchase programme at one of their next few meetings if warranted by economic conditions.

Signs of improving risk appetite have also likely prompted market players to go short the yen, said Ray Farris, head of Asia macro product research for Credit Suisse in Singapore, adding that a recent technical breakout and options-related flows have probably added to the dollar's momentum.

The Dow Jones industrial average set a record close above 16,000 on Thursday, while Japan's benchmark Nikkei share average touched a six-month peak on Friday. Such gains in equities can whet investor appetite for risk and weigh on the low-yielding yen.

Farris said the dollar would probably rise to around 115 yen in the next six months to a year, driven largely by the expected divergence in monetary policy.

"Crucial to most people's forecasts is the expectation that the BOJ will pre-empt the consumption tax hike with new monetary ease," Farris said. A key risk would be if the BOJ were to disappoint that expectation, he added.

The dollar rose 0.1 percent to 101.29 yen after having surged 1.1 percent the previous day.

STOP-LOSS BUYING

Part of the reason for the dollar's jump versus the yen on Thursday was sporadic bouts of stop-loss dollar buying, said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.

The dollar extended its gains on Friday after triggering more stop-loss orders near 101.20 to 101.30 yen, Maeba said, adding that there was later talk of some dollar offers.

One risk for the dollar versus the yen would be if U.S. 10-year Treasury yields were to decline, Maeba said. Another risk would be if shorter-term U.S. yields were to head higher and that in turn exerted downward pressure on equities, he added.

Against the dollar, the euro eased 0.1 percent to $1.3466 , but held above Thursday's low of $1.3399.

The euro gained some support after ECB President Mario Draghi shot down a media report that said the central bank was actively considering cutting a key interest rate below zero.

The Australian dollar hit a fresh 2-1/2 month low, staying under pressure after Reserve Bank of Australia Governor Glenn Stevens said on Thursday that he was "open-minded" about intervening to weaken the currency.

While Stevens made clear that intervention was not without risks, markets were in the mood to sell the Aussie especially after a closely watched report showed China's factory sector grew at a slower pace in November.

The Australian dollar was down 0.5 percent at $0.9190 , having fallen as low as $0.9177.

Source:  Reuters