Yen pummeled to 2 1/2-year low vs dollar on Abe's BOJ talk

TOKYO Fri Jan 11, 2013 5:26am IST

A picture illustration of coins from various countries laying on 10 Dollar and 100 kuna banknotes, taken in Zagreb January 18, 2011. REUTERS/Nikola Solic

A picture illustration of coins from various countries laying on 10 Dollar and 100 kuna banknotes, taken in Zagreb January 18, 2011.

Credit: Reuters/Nikola Solic

TOKYO (Reuters) - The yen slid to 2 1/2-year lows on Friday after Japanese Prime Minister Shinzo Abe said the Bank of Japan should consider maximizing employment as a policy goal on top of its current price stability mandate.

Abe's comments, made in an interview with the Nikkei newspaper published on Friday, put renewed pressure on the yen as having a dual mandates, the U.S. Federal Reserve does, could bind the BOJ to take more aggressive easing.

The dollar rose to as high as 89.04 yen, its highest since July 2010 and last stood at 88.90 yen, up 0.2 percent from late U.S. levels.

The dollar's gain accelerated after a break of the 88.50 option barrier triggered short-covering in thin early Wellington trade.

"Short-term players who had earlier taken profits are now re-entering. A rise above 90 is within sight now," said a trader at a Japanese bank.

The euro also climbed to 118.13 yen, a high last seen in May 2011, before giving up some of its gains to stand at 117.90 yen, 0.2 percent above late U.S. levels.

The yen has been tumbling since November on speculation of more easing from the BOJ, with traders expecting the bank to adopt an explicit two percent inflation target at its policy meeting on January 21-22.

The BOJ's deepening easing bias was in stark contrast to other major central banks.

Minutes of the U.S. Federal Reserve's last policy meeting published last week showed some officials at the bank are concerned about potential side effects of stimulus.

And on Thursday, European Central Bank President Mario Draghi gave no indication it would cut rates in the near future, disappointing euro bears who had thought the ECB would be inclined to cut rates to shore up the wobbly euro zone economy.

As a result the euro jumped 1.6 percent on Thursday, its biggest daily gain in five months and held steady from late U.S. levels at $1.3266.

The single currency is not far from 8 1/2-month peak of $1.33085 hit last month.

The euro was also bolstered by solid demand at a sale of mostly two-year Spanish debt, which caused Spain's benchmark 10-year bond yields to fall to a 10-month low.

Elsewhere, the Australian dollar clung near four-month high hit on Thursday after strong Chinese trade data.

The Aussie unit fetched $1.0586, near Thursday's high of $1.0599.

(Additional reporting by Julie Haviv in New York; Editing by Eric Meijer)

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