FOREX-Yen lifted to 10-week peak versus dollar as equities slide
* Yen hits highest since April 4 when BOJ announced easing
* Stocks slide, dollar index hits four-month low
* Traders unwind overextended long dollar positions
LONDON, June 13 (Reuters) - The yen rose against the dollar on Thursday to levels not seen since the Bank of Japan unleashed its aggressive stimulus in early April, as a slide in stocks triggered an unwinding of bets that it would weaken.
The BOJ's unprecedented measures had made it a one-way trade to buy Japanese equities and sell the yen.
But the Nikkei's recent slide on doubts over Federal Reserve stimulus and Japan's recovery has led foreign investors to unwind hedges taken out to benefit from rising stocks and avoid being hurt by a weaker yen.
The yen was up around 2 percent at 94.18 yen to the dollar, having risen to a peak of 93.75 after Japan's Nikkei share index closed down 6.4 percent. Traders said the April 2 high of 92.57 yen was in sight.
Japanese equity futures, with which dollar/yen has been closely correlated in recent weeks, were also down around 2 percent, while European shares traded lower.
Analysts said the yen, which rises in times of financial turmoil, was gaining on worries that the aggressive policies of Japanese Prime Minister Shinzo Abe were yet to boost the economy and stave off deflation.
"The drop in the Nikkei can be attributed to a combination of factors ... there has been some degree of the gloss coming off the Japanese government's ability to stimulate growth," said Jane Foley, senior currency strategist at Rabobank.
Foley said there was a chance that Japanese authorities might verbally intervene if the yen strengthened much further.
Strategists also said the yen has been supported as market participants shun risky assets on concerns the U.S. Federal Reserve might slow the pace of its asset purchase programme.
Reflecting uncertainty about near-term direction, dollar/yen one-month implied volatility jumped to its highest in more than two years.
In a bearish signal, the dollar fell below the base of its daily Ichimoku cloud, a closely watched chart indicator. A close below the cloud has not happened since mid-October, when the dollar traded around 78 yen.
"This is a fast market and 92.60 (in dollar/yen) is a possibility. But I expect we will see stabilising action by the Japanese next week," said Hans Redeker, head of Global FX strategy at Morgan Stanley.
Market participants slashed hefty bets on gains in the dollar, which had been taken out on expectations the Fed would soon scale back monetary easing.
The dollar lost 0.25 percent against a basket of currencies and was last at 80.75, not far from a nearly-four-month low of 80.50 hit earlier in the day.
The euro hit a near four-month peak of $1.3390. But traders reported offers at $1.3400 and the euro trimmed gains to trade flat at $1.3330.
The euro was down 2 percent at 125.65 yen, having fallen to 125.49 yen, its lowest since April 16.