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Dollar hits 3-1/2 month high vs yen

Tokyo, February 15, 2012

The dollar hit a fresh 3-1/2-month high against the yen on Wednesday and was seen extending its recent gains as the Bank of Japan's easing steps the day before helped trigger more stop-loss buying.

On top of the BOJ's expansion of its asset-buying scheme, Japan's shrinking current account surplus, its trade deficit and signs of economic recovery in the United States were all weighing on the yen, triggering big gains in the shares of Japanese exporters on Wednesday.

Dollar/yen stop loss buying by short-term accounts as well as substantial purchases by Japanese importers, combined with an improving technical outlook, also suggested that the dollar may extend its gains in the near term.

The greenback was up 0.2 per cent at 78.55 yen after hitting a session high of 78.67. It was well on track to extend gains made on Tuesday, which saw the biggest one-day percentage surge since October 31, when Tokyo intervened to weaken the yen.

'There's very little upside pressure on the yen right now. Of course the euro zone can always suddenly change the landscape, but the bottom line for now is that the yen is going down,' said Koji Fukaya, chief currency analyst at Credit Suisse in Tokyo.

In another bullish sign, the dollar held well above strong support at its 200-day moving average, currently 78.04 yen, having closed above it for the first time since mid-April.

Other Tokyo traders agreed with Fukaya, saying the nature of the flows and atmosphere across dealing rooms has changed since the BOJ eased its policy on Tuesday.

'We're seeing some very substantial buy orders for dollar/yen coming in since yesterday - this rally is set to continue for a quite while yet,' said a trader who handles orders from some of Japan's major companies for a Japanese bank in Tokyo.

The trader said an obvious resistance level was now eyed at the post-intervention high of 79.55 yen.

Still, some experts remained sceptical that the dollar could sustain its rise versus the yen in the long run.

'It is difficult to ramp up inflation expectations in a country that has been facing deflation for years. Therefore, the impact on JPY should be limited as usual since there is little impact on real interest rates,' said Tohru Sasaki, head of Japan rates and FX research at JPMorgan Chase Bank in Tokyo.

'We continue to believe that USD/JPY will follow the usual fiscal year-end pattern to head lower as Japanese corporates repatriate foreign retained earnings while institutional investors increase hedging activity,' he said in a note.

The euro was also bid against the yen, fetching 103.42 yen, breaking heavy resistance it has met over the past few sessions in the 103.20-30 area.

Against the dollar, the euro gained 0.3 per cent to $1.3167, still well off February's high of $1.3322.

It was supported as mild short-covering kicked in after China's central bank governor said China will continue to invest in euro zone debt and it remains confident in the euro.

But the immediate outlook for the euro remained uncertain after euro area finance ministers dropped plans for a meeting on Greece's new bailout, saying politicians in Athens had failed to provide the required commitment to reform. The ministers will instead hold a teleconference.

'Caution will be the prevalent theme today, leaving EUR/$ on the back foot and opening the door for a test of technical support around 1.3026,' said Mitual Kotecha, head of global fx strategy at Credit Agricole CIB.

The Australian dollar gained 0.4 per cent to $1.0729 on short-covering. – Reuters




Tags: Dollar | Yen | Japan | Tokyo | Bank of Japan | Euro Zone Crisis |

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