Tuesday, December 31 07:57:37
The dollar held near a five-year high against the yen today to be on track to end 2013 up nearly 21 percent, with efforts to revive the Japanese economy expected to see the trend of broad yen weakness extend into 2014.
The dollar eased 0.3 percent to 104.89 yen, inching away from Monday's peak of 105.41 yen, which was its highest since October 2008. It has risen 20.9 percent against the yen this year, its biggest annual gain since 1979 when it climbed 23.7 percent, according to Thomson Reuters data.
Differing outlooks for monetary policy in the United States and Japan have been key to the dollar's surge against the yen, and the start of the U.S. Federal Reserve's taper of its stimulus could lead to further gains for the dollar in 2014.
By contrast, markets expect the Bank of Japan to maintain or even increase its massive stimulus to beat deflation.
The yen has also retreated as sentiment on the U.S. and European economies improved, and as investors looked to borrow funds cheaply and then invest them in riskier assets.
Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, saw the dollar rising to 110 yen in the first half of next year, before retreating below 100 yen mid-year and then re-testing 110 yen again in late 2014.
Crucial to that outlook would be whether the Fed keeps reducing its bond-buying stimulus through 2014, he said.
In another sign of the yen's weakness, the euro has jumped 26.4 percent against it in 2013, the single currency's biggest such rise since its launch in 1999.
The euro was quoted at 144.71 yen, down 0.3 percent from late U.S. trade, after having set a five-year high of 145.67 yen last Friday.
The Swiss franc hovered near a three-decade peak against the yen, fetching 118.08 yen. The franc touched 119.17 yen on Friday, its highest level since January 1983.
Against the dollar, the euro eased 0.1 percent to $1.3797 , holding below a two-year high of $1.3894 set last Friday on trading platform EBS.
The euro has risen 4.6 percent against the dollar this year, putting it on track for its best annual gain versus the greenback since 2007.
The euro's strength this year has baffled many commentators and investors, who had expected tough economic conditions in some member states to weigh on the single currency.
But the euro has been boosted as banks in the region repatriate funds to shore up their capital bases before an Asset Quality Review by the European Central Bank, and as banks repay cheap crisis loans to the central bank, which tightens liquidity.
In addition, ECB President Mario Draghi has said he saw no urgent need to cut the euro zone's main interest rate further and saw no signs of deflation. ( C ) Reuters