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FOREX-Yen trims gains as doubts creep in over BOJ easing

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LONDON The yen recovered from one-week lows against the dollar and euro on Wednesday, as investors doubted that reports the Bank of Japan was considering further monetary easing measures would turn into a source of significant weakness for the yen.

Sources familiar with the BOJ’s thinking said the central bank would consider making negative interest rates the centerpiece of future easing by shifting its prime policy target to interest rates from base money.

But when the BOJ shocked markets in January by cutting rates below zero for the first time in an attempt to weaken the currency, the yen reaction was only temporarily – and since then it has gained almost 20 percent.

“We do expect them (the BOJ) to tweak policy next week, so we do look for a small deposit rate cut and maybe some further support for bank lending – some technical tweaks – but ultimately, is that going to be enough to sustainably weaken the yen?” said HSBC currency strategist Dominic Bunning, in London.

“We would argue no. The big bazookas have been used and then yen already looks in slightly undervalued territory so it’s very hard to generate this significant yen weakness.”

HSBC sees fair value for the dollar at between 93 and 99 yen, and expects the dollar to trade at 95 yen by year-end.

The dollar gained as much as 0.7 percent after the initial reports on further BOJ easing, hitting 103.35 yen JPY=, its strongest since September 6. But by 1050…



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