Yen slightly softer as BOJ decision looms

TOKYO/SYDNEY, June 11:  The yen weakened slightly in Asia on Tuesday as investors awaited the outcome of a Bank of Japan policy meeting for a sense of what Governor Haruhiko Kuroda plans to do to tackle recent volatility in Japanese markets.
The dollar edged up 0.1 percent to 98.87 yen, pulling away from a two-month low around 94.98 plumbed on Friday. The euro was also 0.2 percent higher at 131.05, having bounced off Friday’s low of 126.19.
Economists polled by Reuters generally expect no policy action but see the BOJ possibly taking further steps to curb volatility in the bond market, which threatens to undermine the central bank’s growth objective.
‘First, the market wants to know if Kuroda thinks the spike in bond yields is acceptable or whether he is feeling a sense of crisis. Second, people want to know what he plans to do about it,’ said Minori Uchida, chief FX analyst at the Bank of Tokyo-Mitsubishi UFJ.
Traders said dollar/yen was also supported after Standard & Poor’s revised its outlook on the US credit rating to stable from negative.
But the dollar index  inched up just 0.1 percent to 81.753, with investors failing to muster much enthusiasm after St. Louis Fed President James Bullard said low inflation meant the central bank could stick to its aggressive stimulus programme.
The Australian dollar plumbed $0.9381, its lowest level since September 2010, after breaking through support at its 2011 trough of $0.9388.
The move came after Goldman Sachs joined a growing number of analysts who have downgraded the Aussie since the beginning of its 9-percent fall from near $1.0400 in early May. The Aussie last bought $0.9409.
Goldman Sachs now has a 12-month target of $0.8500, down from $0.9000 previously. On a three-month view, it sees the Aussie at $0.9200, down from $0.9700. The brokerage also lowered its growth forecast for 2013 to 2 percent from 2.4  percent.
Currency bears took a swipe at the Aussie on Monday after a batch of data over the weekend showed economic growth in China, Australia’s single biggest export market, could slow further in the second quarter.
‘The Aussie used to be bought up whenever problems erupted in the euro zone. But now that Europe has calmed down somewhat, there is no longer that incentive to buy the Aussie, so it’s likely to remain weak for a while,’ said Uchida of the Bank of Tokyo-Mitsubishi UFJ.
Uchida said that Italian and Spanish bond yields coming off dangerously high levels have provided support for the euro, which touched a 3-1/2 month high on June 6 and has gained 2 percent since the end of May.
On Tuesday, the euro was steady at $1.3250. Its gains are likely to be capped around $1.35 as the European Central Bank would probably step in to curb its rise beyond a level the bank sees as too high, Uchida added. (agencies)

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