NEW YORK: The yen tumbled yesterday as investors soured on the currency in anticipation of aggressive policy easing by the Bank of Japan next week while the euro thrived as a series of strong sovereign bond auctions allayed fears about the region’s three-year-old debt crisis.
The dollar appreciated against the yen after sinking for two straight sessions, returning to a trajectory firmly in place since the fourth quarter of last year on expectations that Japan’s new government will be more forceful in its actions to bolster its beleaguered economy.
The yen resumed falls in Asian trade, erasing some of its gains in recent days, after Japan’s Economics Minister Akira Amari was quoted as saying that his remarks on Tuesday about the negative impact of excessive yen weakness had been misinterpreted.
The dollar rose as high as 89.56 and last traded at 89.38 yen, up 1.1 percent on the day, within striking distance of Monday’s 2-1/2-year high of 89.67 yen.
Amari “reversed his earlier comments today and markets added new short yen positions,” said Arne Lohmann Rasmussen, head of FX research at Danske Bank, adding that the Spanish bond auction “certainly helped the euro.”
Strategists said that increasing bets on aggressive policy easing by the Bank of Japan would continue to drag the yen lower before policymakers meet on Jan. 21-22, when it is widely expected to adopt a 2 percent inflation target.
Traders cited strong chart support at 87.77 yen, the low struck on Wednesday, and said that a reported options barrier at 90 yen could act as resistance.
But the yen could rebound if the Bank of Japan fall short of matching market expectations for implementing a very loose monetary policy.
“There is a risk of a disappointment (from the Bank of Japan), but the pattern is that every time there has been a recovery in the yen it has been small and investors are quick to put on new short yen positions,” Nordea FX strategist Niels Christensen said.
“There seems to be a very firm belief this trend (of dollar/yen rising) will continue.”
An improved appetite for risk emerged after a solid bond auction from debt-burdened Spain. Upbeat US data allayed concerns about the world’s largest economy.
Groundbreaking to build new US homes accelerated in December to its fastest pace in over four years while the number of Americans filing new claims for unemployment benefits tumbled to a five-year low last week.
“The euro gained as Spain’s bond auction went smoothly and Portugal said it would announce measures aimed at returning to the bond market this year,” said Nick Bennenbroek, head of currency strategy at Wells Fargo.
Strong demand at a Spanish bond auction buoyed sentiment toward the euro, which last traded at 119.24, up 1.6 percent on the day.
This brought it closer to a 20-month peak of 120.12 yen hit on Monday.
Growing optimism about the euro zone after surprisingly upbeat comments from European Central Bank President Mario Draghi last Thursday.
The euro last traded at $1.3342, up 0.4 percent on the day, but below Monday’s 11-month high of $ 1.3403.
The next important event for financial markets to navigate is the latest batch of Chinese data on Friday.
“So long as the figures confirm a strengthening Chinese economy, we suspect the market’s optimism and the gain in foreign currencies can continue for the time being,” Bennenbroek
The euro also hit a 15-month high against the Swiss franc, of 1.24580 francs, having broken through a reported options barrier at 1.2450 francs. More gains would see it target the peak of 1.2475 francs, hit on Oct. 19, 2011.