The dollar rose to its highest level against the yen in nearly 2-1/2 years on Friday, while the euro also firmed against the yen on expectations that this year will bring more monetary stimulus by the Bank of Japan.
The euro hit a three-week low against the greenback after minutes from the U.S. Federal Reserve’s last meeting indicated that while the Fed looks set to continue buying bonds, some policymakers are reticent about further increasing its $2.9 trillion balance sheet.
The dollar added 0.6 percent to 87.75 yen after earlier rising as high as 87.835 yen on trading platform EBS, its strongest level against the yen since July 2010.
Tokyo markets reopened on Friday for the first day of trading after the long Japanese New Year’s holiday, with the dollar having gained 12.8 percent against the yen in 2012 in its biggest yearly percentage rise since 2005. Investors are betting that the new government of Prime Minister Shinzo Abe will push to weaken Japan’s currency and implement aggressive stimulus, and lean on the Bank of Japan to do the same.
“The yen’s negatives are increasingly prominent,” Steven Englander, head of global G10 currency strategy for Citigroup, said in a research note, adding that growing pressure on the BOJ was among the factors bearish for the yen.
Moreover, he said, the run-up in U.S. equities has pulled the yield spread between benchmark 10-year U.S. Treasuries and 10-year Japanese government bonds to their widest since early April, which also lends support to the dollar over the yen.
A trader for a Japanese bank in Singapore said the dollar was supported against the yen due to persistent buying interest from non-Japanese players. “People outside Japan are all looking to buy (the dollar) on dips,” he said.
U.S. JOBS DATA
The latest Fed minutes showed that Fed policymakers are increasingly concerned about the potential risks of the Fed’s asset purchases.
“Several (officials) thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet,” the minutes said.
Rob Ryan, strategist for RBS in Singapore, said that the minutes raise the chances that on the back of more good data, a few other Fed policymakers “might shift in that direction and possibly bring QE (quantitative easing) to an end well before people thought was likely.”
“If we do get some decent jobs data tonight, then the impact of that jobs data is going to be magnified,” Ryan added.
Later on Friday, the U.S. nonfarm payrolls report is expected to show the American economy added 150,000 jobs in December, according to a Reuters survey of economists, up from November’s 146,000. The U.S. unemployment rate is expected to stay at 7.7 percent.
The euro held steady at $1.3045. Earlier, the euro fell to $1.3019, its lowest since December 12.
A trader for a Japanese brokerage house in Tokyo said the euro’s decline against the dollar over the past couple of trading sessions was partly a reflection of market positioning.
“Since late last year, the market’s positions were tilted toward being long the euro, with the euro having been bought on the crosses,” the trader said, adding that the Fed minutes on Thursday created an opportunity to sell the single currency.
The euro gained on the yen, rising 0.6 percent to 114.47 yen, but was still far below an 18-month high of 115.995 yen set on trading platform EBS on Wednesday.
Against the yen, the euro is on track to end the week below its 200-week moving average, now near 114.96, which could signal a pullback toward its March 2012 high of 111.43 yen.