FOREX-Yen rises on risk pullback; downtrend intact

* Yen rises as Japan upgraded severity of nuclear crisis

* Speculators cut back carry trades but demand to buy dips

* Fed officials sound dovish, dollar index steady (.DXY: Quote, Profile, Research)

(Changes dateline, adds quotes, detail, previous TOKYO)

By Neal Armstrong

LONDON, April 12 (Reuters) – The yen strengthened on Tuesday
as investors bought the currency to cover bets against it after
Japan upgraded the severity of its nuclear crisis, but was seen
returning to its weakening trend as carry trade demand resumes.

Japan raised the severity of its nuclear disaster to the
highest level — on a par with the Chernobyl disaster of 1986 —
citing accumulated levels of radiation released. [ID:nL3E7FB2TZ]

The news prompted some speculators to book profits on carry
trades, where investments in riskier assets are funded by
short-selling the yen.

World stocks (.MIWD00000PUS: Quote, Profile, Research) retreated on the Japanese
warning, while U.S. bellwether stock Alcoa (AA.N: Quote, Profile, Research) fell 3
percent in after hours trade as first quarter revenues missed
targets, prompting some unwinding in riskier assets.

“The sharp pickup in speculator demand for yen-funded carry
trades leads to a greater risk of correction if risk aversion
picks up in the near-term. However we still think the yen is on
a weakening trend,” said Lee Hardman, currency analyst at
BTM-UFJ.

Group of Seven (G7) intervention to weaken the Japanese
currency has fuelled yen selling to fund carry positions.
Expectations that the Bank of Japan will keep policy loose to
help the economy rebound from last month’s devastating
earthquake have also hit the yen.

The U.S. dollar was down 0.3 percent at 84.30 yen (JPY=: Quote, Profile, Research)
paring earlier losses after running into technical support at
its 200-day moving average just below 83.50. Japanese real-money
accounts were dollar/yen buyers, while offers were reported at
84.50.

The euro was down 0.6 percent at 121.47 yen

“The market wanted to scoop up the yen crosses on extremes,
hence the rebound this morning,” said a London-based spot
trader.

“Ichimoku support in euro/yen held at 120.03 and even if we
were to see a break below there I cannot see the move extending
much past 119.60 unless euro/dollar takes a plunge.”

The euro (EUR=: Quote, Profile, Research) was flat against the dollar at $1.4429.
Traders said sovereign demand at $1.4360/50 was likely to limit
any falls, while a major Asian account was the main buyer. On
the topside traders said the January 2010 high of $1.4582 was
key resistance.

EYEING INFLATION

The dollar index (.DXY : Quote, Profile, Research), which tracks the greenback against
a basket of major currencies was flat on the day at 75.083 after
plumbing a 16-month low of 74.838 on Friday.

Dovish comments from key U.S. Federal Reserve officials the
previous day indicate that the U.S. Federal Reserve is not in
any hurry to tighten its policy, likely limiting the greenback’s
upside potential in the near future.

Two of the Fed’s most powerful officials, Janet Yellen and
William Dudley, said on Monday that the U.S. central bank should
stick to its super-easy monetary policy, arguing that inflation
is not a threat and unemployment remains too high.
[ID:nN11296347]

The Australian dollar (AUD=D4: Quote, Profile, Research) was down 0.2 percent at
$1.0477, off a 29-year peak of $1.0585 set Friday. Traders said
stops at $1.0485 were looking vulnerable. The Canadian dollar
eased to C$0.9575 per U.S. dollar (CAD=: Quote, Profile, Research), not far from a 3
1/2-year high of C$0.9526 hit last week.

Final inflation data in Germany came in broadly in line with
expectations at 0.5 percent for March. UK consumer prices are
due for release at 0830 GMT, with analysts looking for a rise of
0.6 percent on the month. U.S inflation data is due on Thursday
and Friday.
(Additional reporting by Hideyuki Sano, editing by Catherine
Evans)

FOREX-Yen rises on risk pullback; downtrend intact