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FOREX-Yen weighed down by BOJ easing hopes; kiwi rises

Masayuki Kitano
Thursday, 25 Oct 2012 | 4:19 AM ET

* Fed sticks to stimulus plan, no new steps

* RBNZ less dovish than expected, NZ dollar up

* Yen sags ahead of BOJ policy meeting next week

* Dollar/yen supported by hedge fund buying-trader

SINGAPORE, Oct 25 (Reuters) - The dollar edged higher versus the yen on Thursday as the yen stayed under pressure on expectations for more Bank of Japan monetary easing, while a less-dovish-than-expected New Zealand central bank gave the kiwi dollar a boost.

The dollar rose 0.2 percent to 79.97 yen, nearing a three-month high of 80.02 yen set on trading platform EBS on Tuesday.

Dollar buying by hedge funds helped to give the greenback a lift, said a trader for a European bank in Tokyo, adding that the dollar's resilience versus the yen in the past couple of days has been striking, given that there has also been no shortage of dollar sellers.

``Since yesterday, there have been dollar-selling flows starting during Tokyo hours, from players such as investors and Japanese exporters, and overseas players were selling yesterday too,'' the trader said.

``But the dollar still hasn't fallen,'' he added.

The yen has retreated recently due to growing expectations that the Bank of Japan will unveil further monetary stimulus at its policy meeting on Oct. 30 in a bid to help the export-focused economy through a global slowdown.

With such expectations already running high, the yen is unlikely to fall sharply even if the BOJ were to embark on more monetary easing next week, said Roy Teo, FX strategist for ABN AMRO Bank in Singapore.

``I think quite a bit has been priced in now, in terms of weakness in the yen,'' Teo said, adding that ABN AMRO's forecast was for the dollar to trade near 80 yen, roughly where it is now, at the end of the year.

Still, the dollar's downside is likely to be limited since U.S.-Japan yield spreads have moved in the dollar's favour recently, Teo added.

A series of upbeat U.S. economic indicators this month including data pointing to a strengthening recovery in the housing market, have helped lift U.S. Treasury yields and caused U.S.-Japan yield spreads to widen.

Later on Thursday, there will be more U.S. indicators for the market to digest, including data on initial jobless claims and durable goods orders.

The U.S. Federal Reserve on Wednesday stuck to its plan to keep stimulating U.S. growth until the job market improves even as it acknowledged some parts of the economy were looking a bit better. The outcome was in line with market expectations and contained no surprises.

NEW ZEALAND DOLLAR

Investors warmed to the New Zealand dollar after new central bank governor, Graeme Wheeler, kept rates unchanged and reiterated expectations for inflation to head back towards the middle of its 1-3 percent target range.

Some had been wagering that low inflation would lead the bank to open the door for a possible easing.

``The doves are left empty-handed as the brief communique was surprisingly balanced,'' said Annette Beacher, head of Asia-Pacific Research at TDSecurities.

The kiwi dollar rose 0.3 percent to $0.8220, pulling well away from a six-week low of $0.8100 plumbed earlier in the week.

Among other currencies, the euro held steady at $1.2973 .

The single currency has lost steam since hitting $1.3140 on Oct. 17 as markets grew impatient waiting for Spain to request a bailout and activate the European Central Bank's bond-buying programme.

But investors were also wary of becoming too bearish on the euro, given that Madrid could trigger the programme any time.