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Yen lower as traders bet on stimulus

Tuesday, March 12 07:18:45

The yen carved out a fresh 3-1/2-year low versus the dollar today and fell to a 4-1/2-year trough on the Australian dollar as traders bet the Bank of Japan's stimulus may be bolder and come sooner than expected.

The Nikkei business daily reported the nominee for BOJ governor, Haruhiko Kuroda, had hinted on Monday he may launch new monetary easing steps soon after he takes office next week, rather than wait for his first scheduled policy meeting on April 3-4.

In addition, the minutes from the BOJ's February meeting, where it kept its policy on hold, showed some board members considered buying JGBs with longer remaining maturities as an option.

"The minutes showed buying longer-dated bonds were discussed even among the current board members. The market has priced in more buying in bonds with up to five years to maturity. But if the BOJ is to go beyond that, that's not priced in yet," said Minori Uchida, chief currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

The dollar rose as high as 96.71 yen, pipping the previous high of 96.60 and last stood around 96.40 yen, a gain of 0.1 percent from late U.S. levels.

The moves also came against a backdrop of optimism on the U.S. economy, with the Dow closing at yet another record high, while Wall Street's "fear gauge", the CBOE Volatility Index, hit its lowest since February 2007.

Positive risk sentiment, fuelled by Friday's solid U.S. jobs data, also lifted yields on U.S. Treasuries, which tend to have strong positive correlation with dollar/yen as higher yields are thought to attract more bond investments in that currency.

"Dollar/yen was already very bid overnight, consistent with the backup in U.S. Treasury yields. The Nikkei story has just given it a bit of a kick and it's certainly adding to yen weakness," said Sue Trinh, senior currency strategist at RBC in Hong Kong.

"Speculation of an inter-meeting easing is probably going to be a focus on the day. It won't be unprecedented to call an unscheduled meeting...it's not about emergency easing but if he were to do so, it's more symbolic and a signal to markets that he does mean business." ( C) Reuters