FOREX-Yen rallies after Bank of Japan refrains from stimulus

Reuters

* Yen posts biggest one-day gain vs dollar since August

* BoJ keeps policy unchanged, sounds upbeat on economy

* BoJ Governor Kuroda sees no immediate need to ease policy

* Greenback weakens further in wake of March U.S. jobs data (Adds quote, updates market prices)

By Richard Leong

NEW YORK, April 8 (Reuters) - The yen rallied on Tuesday as traders dialled back bets against the currency after the Bank of Japan held off on additional monetary easing and BoJ Governor Haruhiko Kuroda offered little indication more stimulus was likely in the short term.

The Japanese currency posted its strongest one-day gain against the U.S. dollar and its biggest single-day rise against the euro in four weeks, according to Reuters data.

Many investors have been selling the yen, anticipating that a sales tax hike that took effect in Japan at the start of April will hurt consumption and the BoJ may have to ease policy in coming months to soften the blow.

The BoJ decision to refrain from further monetary stimulus was seen as supportive for the yen.

"You had a lot of players who were short the yen and Kuroda dashed the hopes of stimulus," said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago.

The dollar tumbled 1.4 percent to a three-week low of 101.56 yen before stabilizing at 101.69 in late trading.

The euro pierced below its 141 yen support to 140.09 yen, its lowest in over a week. The euro zone single currency was down nearly 1 percent at 140.28 yen in late trading.

The yen had been inching up before the BoJ policy decision. It added to those gains after the BoJ kept policy unchanged, and strengthened further after Kuroda sounded upbeat about the economy and said both inflation and growth would pick up in coming months despite the sales tax hike.

"Kuroda is signalling a 'steady-as-she-goes' hand as regards to monetary policy which will disappoint some yen bears," said Peter Kinsella, currency strategist at Commerzbank. "Unless inflation falls sharply it doesn't look that they will ease."

DOLLAR WEAKNESS

The greenback has struggled against the yen in recent sessions after Friday's March U.S. jobs data disappointed some investors who had been betting on a faster recovery in the world's largest economy. It has pulled back from a 10-week high of 104.13 yen set on Friday.

The U.S. government said employers added 192,000 jobs last month, below the 200,000 forecast by economists polled by Reuters and far fewer than the 225,000 to 250,000 some traders had hoped for.

"That has dealt a blow to the dollar bull story we had earlier this year," Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. "This doesn't look so promising for the dollar going forward."

Other analysts, however, said the dollar's recent drop offered opportunity for investors to initiate fresh bets in favor of the greenback and against the yen.

That is based on the view that monetary policy between the Federal Reserve and the BoJ is increasingly diverging. The Fed is tapering its bond-buying program and many are also looking for it to hike rates sometime in the middle of 2015.

"The downside for dollar/yen is limited and at the end of the second quarter we could see it rise to 105 yen," said Yujiro Gato, analyst at Nomura in London.

The dollar might weaken further against the euro as European Central Bank policymakers continue to hold down expectations on measures to avert deflation in the euro zone.

The euro got a brief boost against the greenback earlier after the International Monetary Fund upgraded its outlook on the euro zone economy from its forecast back in January while it trimmed its view on the global economy.

The euro was up 0.4 percent against the dollar at $1.3796 after touching a near two-week high at $1.3811. It has risen 0.7 percent since falling to a one-month low of $1.3672 on Friday.

Many, though, were wary of pushing the euro much higher as further strength might lead the ECB to take action.

"For the ECB, further appreciation of the euro is not acceptable. Any move towards $1.40 will see a response," said Bill O'Neill, head of the UK investment office at UBS Wealth Management in London.

(Additional reporting by Anirban Nag in London; Masayuki Kitano and Natsuko Waki in Tokyo; Editing by Catherine Evans, Meredith Mazzilli and James Dalgleish)

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