Yen up on Japan minister's comment, Draghi weighs on euro

NEW YORK Sat Feb 9, 2013 3:21am IST

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NEW YORK (Reuters) - The yen rose against the euro and dollar on Friday after Japan's finance minister commented on the currency's swift and sharp move higher recently, raising doubts about whether the next governor of the Bank of Japan will aggressively ease policy.

The yen, which fell to its lowest against the euro since April 2010 and its lowest against the dollar since May 2010 on Wednesday, got a boost from Finance Minister Taro Aso's comments that the currency's slide to 90 from 78 per dollar was steeper than intended.

It was also helped by a Reuters report that Japanese Prime Minister Shinzo Abe faces opposition from within his own cabinet and financial bureaucrats to appointing a new BoJ governor who will pursue aggressive easing policies.

Aso may be trying deflect criticism about Japan's policies ahead of next week's G20 meeting in Moscow, according to Kit Juckes, currency strategist at Societe Generale in London.

He also may have been simply answering a question and triggering a yen correction into the weekend ahead of the Chinese New Year, he added.

"Do nothing today, but if we are at these levels on Monday, we will look to buy euro/yen," Juckes said.

In coming weeks, the yen will likely be influenced by talk about next BoJ governor. A governor in favor of more forceful action should send the yen lower.

The euro fell as low as 123.40 yen, before paring losses to trade down 1.2 percent on the day at 123.98 yen.

The dollar last traded at 92.78 yen, down 0.9 percent on the day, according to Reuters data. It earlier hit a low of 92.15 yen.

At current prices, the dollar has gained against the yen for 13 straight weeks.

The euro, meanwhile, continued to be weighed by comments that European Central Bank chief Mario Draghi made on Thursday.

Draghi said the exchange rate is important for growth and price stability, which investors perceived as a sign the bank is concerned with the common currency's recent advance and potentially could act to stem its strength.

"Central bank and government officials from around the world have given FX markets the gift of volatility this year," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York. "Yesterday, it was ECB President Draghi's second press conference in a row that caught markets by surprise. Today, it was Japan Finance Minister Aso's turn, as he apparently told reporters that the recent pace of yen weakness has been too fast."

Earlier this month, BoJ governor Masaaki Shirakawa said he will step down on March 19, weeks ahead of schedule, allowing Abe to appoint a chief who is more amenable to making drastic policy changes to get Japan out of deflation.

Expectations that the BoJ will aggressively ease monetary policy have driven the yen lower in recent months.

Some strategists said gains were likely to be temporary after Japanese balance of payments data added to worries about the economy.

Currency speculators increased their bets against the U.S. dollar in the latest week, according to data from the Commodity Futures Trading Commission released on Friday.

Looking ahead, a slew of statements from Federal Reserve speakers will grab attention next week. A G20 meeting on Thursday and Friday attended by global finance ministers and central bank governors will also be a major focus next week.

POLICY OUTLOOK

The euro last traded at $1.3364, down 0.2 percent on the day, with the session trough of $1.3352, the lowest since January 25.

Draghi also said economic activity in the euro area should recover gradually in 2013, but added there are more negative risks than positive and said the exchange rate was important for growth and stability.

Investors interpreted the remarks as setting the scene for a possible future interest rate cut by the ECB in the event the euro zone economy slows further.

At current prices, the euro is down about 2.01 percent against the dollar this week, the worst week since July 8, according to Reuters data.

(Reporting by Julie Haviv. Additional reporting by Nick Olivari and Wanfeng Zhou. Editing by Andre Grenon)

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