TOKYO The yen hovered near its lowest levels in ten days against the dollar on Friday and was set to stay under pressure on expectations of more easing by the Bank of Japan next week, although its outlook further out is less certain.
The greenback stood at 81.63 yen, having hit a 9-day high of 81.74 the day before. That brought the April 10 peak of 81.87 into focus. The euro climbed as high as 107.35, staging a powerful comeback from Monday's trough of 104.63.
Reinforcing expectations that the central bank could ease its already super-loose monetary policy, governor Masaaki Shirakawa said it will continue powerful monetary easing until a 1 percent inflation target is in sight.
Piling more pressure on the bank, a senior International Monetary Fund official said the BOJ should accommodate more to support Japan's still-fragile economy as it has room to take unconventional steps.
"We expect a rise of at least 5 trillion yen in the BOJ's asset purchase program at the 27 April meeting, with a significant bias toward risk asset purchases," said Naomi Fink, Japan equity strategist at Jefferies.
But traders said the market has already priced in a policy loosening and more steps may be needed to have a significant impact on markets.
"In order to propel markets further upward, easing of greater than 5 trillion yen, particular emphasis on risk assets, dovish rhetoric indicating further steps to come, or a combination of some or all of the above is needed," said Fink.
The dollar was also supported on the back of importer buying with traders citing strong bids below 81.50 yen.
While some traders acknowledged that the BOJ's easing bias was helping weaken the currency, they pointed out that it was not the major factor behind its big 6 percent fall this year.
The yen has weakened broadly on the pick-up in risk sentiment earlier in 2012 caused by tentative calm in the euro zone, they said. Japan's current account surplus also hit a 15-year low in 2011, the country posted a record trade deficit in January and fossil fuel imports surged after the Fukushima disaster, all of which have weighed on the yen.
"Even if the BOJ comes up with something very powerful, my sense is that players would first rush to take profits on the dollar and only after that start to think what the bank's move really means," said a senior spot trader for a major Japan bank.
He pointed to the relatively small scale of the bank's easing, and noted that recent soft U.S. data has shifted the focus back onto the dovish policy of the Federal Reserve.
The number of Americans claiming unemployment benefit for the first time fell less than expected last week, while factory activity in the Mid-Atlantic region slowed sharply this month and U.S. home resales fell again in March.
"That possibility (of Fed easing) still looms somewhere there and prevents many players from piling more aggressively into the dollar and selling the yen," he said.
Against the dollar, the euro emerged from a choppy overnight session none the worse for wear. It hit a high of $1.3166 following a successful Spanish bond sale but then dropped on rumors, later denied, of a possible French rating downgrade.
It was barely changed at $1.3143, comfortably within the well-trodden range of $1.30-$1.32.
The Australian dollar, though, nursed losses after disappointing U.S. data and poor earnings sapped risk appetite.
The Aussie retreated to $1.0318, falling for a second day. However, it too remained within this week's band of $1.0305-1.0418, with markets yet to find enough momentum to break out of the current range.
"Now, with the G20 convening in Washington, much attention will be drawn to how and where the International Monetary Fund draws up additional funding from in order to further beef up Europe's bailout funds," said Christopher Vecchio, analyst at DailyFX.
"Should the G20 decide that the IMF's funding capacity is adequate...I expect the European and commodity currencies to depreciate against the yen and U.S. dollar over the coming sessions."
The IMF's bid to win a big boost in funding to handle the euro-zone debt crisis hit a speed bump on Thursday when Brazil demanded more power at the IMF for emerging economies as a condition for lending it extra cash.
(Additional reporting by Ian Chua in Sydney and Hideyuki Sano in Tokyo; Editing by Richard Pullin)
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