* Yen comes under renewed pressure vs dollar and euro
* BoJ inflation goal, fear of debt downgrade weigh on yen
* Euro investors position before Thursday's ECB meeting
* Spain and Italy debt sales could sway sentiment
By Julie Haviv
NEW YORK, Jan 9 The yen plummeted against the
U.S. dollar on Wednesday, revisiting a trend that recently took
the currency to a 2-1/2-year low on expectations of easier Bank
of Japan policy and the possibility the central bank will raise
its inflation goal.
Yen price action should remain volatile as the BoJ Jan.
21-22 policy meeting nears, with the dollar's roughly 1.2
percent pullback in the previous two sessions viewed as an
opportunity to buy at lower levels.
The yen, which also tumbled against the euro, was weighed by
the prospect of the BoJ raising its inflation target at its next
meeting as well as fears of a downgrade on its government debt.
"Looking ahead to the BoJ later this month, investors are a
little hesitant to bid the yen up too much higher," said Omer
Esiner, chief market analyst, at Commonwealth Foreign Exchange
in Washington. "The outlook for additional easing is keeping a
lid on the yen to the upside."
The dollar last traded at 87.92 yen, up 1 percent on
the day and well above a near one-week low of 86.81 hit earlier
in the session. On Friday, the dollar reached a 2-1/2-year high
Sources familiar with the BoJ's thinking said the central
bank was likely to adopt a 2 percent inflation target at the
meeting, double its current goal, and issue a statement with the
government promising bold monetary easing steps.
A move toward a higher inflation target would require even
more aggressive accommodation from the BoJ and would likely
provoke additional weakness in the yen.
The BOJ will also consider easing monetary policy again this
month, probably through an increase in its 101 trillion yen
($1.2 trillion) asset buying and lending program, the sources
Expectations that Japan's newly elected government led by
Prime Minister Shinzo Abe would push the BOJ to adopt more
forceful monetary stimulus measures have driven the yen sharply
lower in recent months. But the dollar and the euro eased
against the yen this week as investors locked in profits after
At Friday's peak, the dollar had gained nearly 12 percent
against the yen since early November, and traders said the rally
was due for a pause.
"After a 10-12 percent rise, there is bound to be some
consolidation and a shakeout could possibly see dollar drop to
84 yen," said Howard Jones, partner at money manager RMG Wealth
Management in London.
"But any consolidation will be short-lived. From a macro
view, with a huge change of policy taking place in Japan and the
government determined to drive the yen lower, one must not
underestimate them. We are looking at the dollar hitting 100 yen
during the course of this year."
On Wednesday, Abe repeated his call to the BOJ to take
sufficient steps to achieve a 2 percent inflation target while
Finance Minister Taro Aso called for aggressive measures to beat
The euro last traded up 0.8 percent at 114.74 yen
but was still below an 18-month high set on Jan. 2.
The euro, however, fell for a second straight session
against the dollar and last traded 0.2 percent lower at $1.3052
ahead of a European Central Bank meeting on Thursday. While
strategists suggest the ECB will keep its interest rates on hold
on Thursday, some investors and economists believe rates will be
cut later this year.
Comments from European Central Bank President Mario Draghi
after the central bank's interest rate announcement will have
the potential to sway currency sentiment.
Also on the radar screen this week are the first bond
auctions of the year from Spain and Italy on Thursday and
The risks of disappointment have increased and if this is
confirmed, headwinds for the euro could intensify, according to
Valentin Marinov, G10 strategist at CitiFX, a division of
Citigroup, in London.
"Decent auction results could help the euro consolidate in
the very near term," he said. "That said we suspect that this
could be only temporary."
That is because further sustained improvement in periphery
sentiment could come after a bailout request from Spain and more
clarity on the political outlook in Italy, he said.