FOREX-Yen struggles, faces post-payrolls sell risk

* Yen hits 10-mth low vs euro, 6-wk trough vs dollar

* Dlr/yen rises above 200-day MA, may target Y84.50

* Policy divergence, widening differentials push yen lower

(Adds quote, updates prices)

By Anirban Nag

LONDON, April 1 (Reuters) – The yen fell on Friday to a
10-month low against the euro and below its 200-day moving
average versus the dollar, with the greenback likely to push
higher if a key U.S. jobs report beats expectations.

Speculation grew for a strong reading of non-farm payrolls
at 1230 GMT, which would reinforce perceptions an improving U.S.
economy would bolster the argument for tighter monetary policy
and further widen dollar/yen yield differentials.

That would enhance the yen’s appeal as a funding currency of
choice amongst investors like hedge funds and model funds, which
are increasingly looking to sell the yen and buy high-yielding
currencies. These investors are also going long on the
dollar/yen pair ahead of the U.S. jobs numbers.

Analysts are forecasting the U.S. economy will add 190,000
jobs in March. The data comes a day after hawkish comments from
a U.S. Federal Reserve official gave traders more reason to
think the Fed will raise rates before the Bank of Japan.

The BOJ is widely expected to lag behind the Fed and the
European Central Bank in raising interest rates, especially in
the wake of the March 11 earthquake and tsunami that devastated
Japan’s northeast.

“A strong payrolls number would be reflected in the
dollar/yen and it could rise to 84.50 in the short term,” said
Simon Derrick, head of currency research at Bank of New York
Mellon. “We expect to see prolonged yen weakness due to loose
monetary and fiscal policy in Japan.”

The dollar was up 0.6 percent at 83.65 yen (JPY=: Quote, Profile, Research). It
touched a six-week high of 83.748 yen on trading platform EBS
earlier, and the next major peak on daily charts is its
mid-February high of 83.98 yen. Against a basket of currencies,
the dollar (.DXY: Quote, Profile, Research) was up 0.3 percent at 76.115.

The dollar rose above its 200-day moving average against the
yen at 83.60 yen for the first time since June, suggesting
upside potential for the greenback.

DOLLAR HIGHER ON HAWKISH COMMENTS

The dollar was supported after the Wall Street Journal
reported that Minneapolis Federal Reserve President Narayana
Kocherlakota signaled the Fed could raise interest rates by 75
basis points by the end of the year. [ID:nN31167243]

A series of hawkish comments by Fed officials recently has
helped drive U.S. Treasury yields higher this week and caused
the dollar’s yield advantage over the yen to widen. President of
the New York Fed, William Dudley, and Dallas Fed chief Richard
Fisher were due to speak later on Friday.

Analysts said improving risk appetite was drawing more
investors towards yen-funded carry trades. The yen fell broadly
on the crosses, hitting an 11-month low against the Australian
dollar and its lowest in more than 10 months against the euro.

The single European currency rose as high as 118.675 yen
(EURJPY=R: Quote, Profile, Research) on trading platform EBS, the euro’s highest against
the yen since mid-May 2010. The euro last stood at 118.35 yen,
up 0.6 percent on the day.

The euro was slightly lower against the dollar (EUR=: Quote, Profile, Research) at
$1.4157, barely reacting to an extraordinary issue of 2012 bonds
by Portugal. Talk of sovereign demand at $1.4140-50 and at
$1.4125-30 put a base under the single currency.

Market participants said options-related barriers around
$1.4250 would cap any upside in the single currency for the
moment. A break above that level would open the way to $1.4293,
a peak hit in November.

Portugal sold 1.645 billion euros of one-year debt at a high
price after yields soared this week on the back of political
uncertainty and rising expectations the country will need
financial aid.

“The euro has been incredibly resilient to the sovereign
debt woes,” said Kit Juckes, currency strategist at Societe
Generale.

The euro’s resilience is partly due to expectations the ECB
will raise rates next week. Markets (ECBWATCH: Quote, Profile, Research) are pricing in at
least three rate hikes this year. But investors are wary that a
sustained rise in rates could push up funding costs for
peripheral euro zone countries and add to their debt woes.

“So the ECB’s path towards normalising rates will depend
upon the reaction from the bond markets,” added Juckes.
(Additional reporting by Naomi Tajitsu; Editing by Susan
Fenton/Toby Chopra)

FOREX-Yen struggles, faces post-payrolls sell risk