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FOREX-Yen rallies broadly as BOJ easing underwhelms

Nia Williams
Tuesday, 30 Oct 2012 | 9:49 AM ET

* Yen hits one-week high vs dollar, two-week high vs euro

* Euro climbs vs dollar, but outlook clouded

* U.S. markets stay closed as storm Sandy batters U.S.

LONDON, Oct 30 (Reuters) - The yen rose broadly on Tuesday after monetary easing steps from the Bank of Japan's disappointed some market players who had positioned for a more aggressive increase in asset purchases.

The BOJ increased its monetary stimulus for the second monthly in a row, this time by 11 trillion yen ($138.5 billion).

``It was a very sceptical response to the BOJ policy meeting, made worse by the fact they have revised lower the growth and inflation outlook. That has seen the yen unwind a lot of the softer tone we saw going into this meeting,'' said Jane Foley, senior currency strategist at Rabobank.

The dollar hit a one-week low of 79.25 yen, breaking below its 200-day moving average at 79.52, important chart support. It was last down 0.4 percent on the day at 79.45 yen.

Some strategists said Friday's four-month peak of 80.38 would act as resistance for the dollar, and further moves in the safe-haven yen would depend on how developments in the United States and the euro zone affected investor appetite to take on risk.

``The dollar has probably hit a near-term peak last week. After the BOJ's easing, the market's focus will probably move on to whether the Federal Reserve will take steps in December to deal with the fiscal cliff,'' said Ayako Sera, senior market economist at Sumitomo Trust Bank.

The dollar was likely to stay trapped in its well-worn trading range around 77.50-80 yen, she added.

The euro also slipped against the Japanese currency, to a two-week low of 102.175 yen, before paring losses to trade down 0.2 percent at 102.78 yen.

WAITING GAME

The single currency climbed 0.3 percent against the dollar to $1.2935, helped by lower Spanish and Italian bond yields. Market players cited bids at $1.2850-80, and said there was buying ahead of the 200-day moving average at $1.2834.

Traders reported option expiries at $1.2900 and $1.2925 and said volumes were likely to be thin. U.S. markets were closed as Sandy, one of the biggest storms ever to hit the United States, battered the eastern seaboard.

Gains for the euro looked likely to be capped by concerns about whether Greece can agree a deal on more austerity, and uncertainty over when Spain might request financial aid.

Spanish Prime Minister Mariano Rajoy said on Monday he would seek a credit line from the euro zone's rescue fund ``when I think it is in the interests of Spain''.

Data on Tuesday showed Spain's recession extended to a third quarter, while inflation stayed high.

``Spain's economy is suffering terribly, which will continue to hit government revenues, and a modest decline in bond yields will not solve the problem,'' said Kit Juckes, strategist at Societe Generale.

Despite that, expectations the European Central Bank will start a bond buying programme after Madrid asks for a bailout limited speculative euro selling, and kept the currency within the $1.28 to $1.3170 range it has been in since mid-September.

The U.S. dollar was steady against the Canadian currency at C$1.0001. It earlier hitting a three-month high of C$1.0020 and broke above parity, seen as a key technical level.

Strategists said it was too early to tell what impact the destruction caused by Sandy might have on currency markets.

Demand for the dollar tends to rise in times of reduced appetite to take on risk, but if widespread damage prompts speculation the Fed may ease policy further to shore up the economy, the dollar could fall.