FOREX-Yen hits 4-month low vs dollar; Aussie under pressure

Reuters

* Yen falls to fresh 4-month low vs USD, 4-year low vs EUR

* Aussie hovers near 2-1/2 month low

* RBA Stevens 'open-minded' about intervening to weaken AUD

By Masayuki Kitano

SINGAPORE, Nov 22 (Reuters) - The yen fell to a four-monthlow versus the dollar on Friday, with the low-yielding Japanesecurrency pressured by signs of improving risk appetite andcontrasting outlooks for monetary policy.

Investors also dumped the Australian dollar after thecountry's central bank chief said he was "open-minded" aboutintervening to weaken the currency.

The euro rose to 136.54 yen, its highest levelsince October 2009, while the dollar scaled a four-month high of101.36 yen, nearing its July peak of 101.54 yen.

There was little reason for investors not to continue usingthe yen as a funding currency for carry trades after the Bank ofJapan stayed committed to its ultra-loose monetary policy onThursday.

In addition, there are expectations that the BOJ might addto its monetary stimulus in coming months to achieve its 2percent inflation target and to offset the fiscal drag from anincrease in the sales tax next April.

BOJ Governor Haruhiko Kuroda reiterated on Friday that thecentral bank stood ready to make necessary adjustments if risksto the economy threatened its inflation goal.

By contrast, while there is uncertainty about when the U.S.Federal Reserve will start scaling back its bond-buyingstimulus, many market players expect the Fed to begin taperingaround March 2014, and possibly even sooner.

Minutes from the Fed's October policy meeting released onWednesday showed that policymakers felt there was room to beginscaling back the $85 billion monthly bond purchase programme atone of their next few meetings if warranted by economicconditions.

Signs of improving risk appetite have also likely promptedmarket players to go short the yen, said Ray Farris, head ofAsia macro product research for Credit Suisse in Singapore,adding that a recent technical breakout and options-relatedflows have probably added to the dollar's momentum.

The Dow Jones industrial average set a record closeabove 16,000 on Thursday, while Japan's benchmark Nikkei shareaverage touched a six-month peak on Friday. Such gainsin equities can whet investor appetite for risk and weigh on thelow-yielding yen.

Farris said the dollar would probably rise to around 115 yenin the next six months to a year, driven largely by the expecteddivergence in monetary policy.

"Crucial to most people's forecasts is the expectation thatthe BOJ will pre-empt the consumption tax hike with new monetaryease," Farris said. A key risk would be if the BOJ were todisappoint that expectation, he added.

The dollar rose 0.1 percent to 101.29 yen afterhaving surged 1.1 percent the previous day.

STOP-LOSS BUYING

Part of the reason for the dollar's jump versus the yen onThursday was sporadic bouts of stop-loss dollar buying, saidHiroshi Maeba, head of FX trading Japan for UBS in Tokyo.

The dollar extended its gains on Friday after triggeringmore stop-loss orders near 101.20 to 101.30 yen, Maeba said, adding that there was later talk of some dollar offers.

One risk for the dollar versus the yen would be if U.S.10-year Treasury yields were to decline, Maeba said. Anotherrisk would be if shorter-term U.S. yields were to head higherand that in turn exerted downward pressure on equities, headded.

Against the dollar, the euro eased 0.1 percent to $1.3466, but held above Thursday's low of $1.3399.

The euro gained some support after ECB President MarioDraghi shot down a media report that said the central bank wasactively considering cutting a key interest rate below zero.

The Australian dollar hit a fresh 2-1/2 month low, stayingunder pressure after Reserve Bank of Australia Governor GlennStevens said on Thursday that he was "open-minded" aboutintervening to weaken the currency.

While Stevens made clear that intervention was not withoutrisks, markets were in the mood to sell the Aussie especiallyafter a closely watched report showed China's factory sectorgrew at a slower pace in November.

The Australian dollar was down 0.5 percent at $0.9190, having fallen as low as $0.9177.