FOREX-Yen withers as yield gap widens, may head to 87 per dollar

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

* Dlr/yen rises above 200-day MA, may target Y86-87

* Widening yield differentials driving yen lower-traders

* Aussie hits 11-mth high vs yen, near 29-yr high vs dlr

By Ian Chua and Masayuki Kitano

SYDNEY/SINGAPORE, April 1 (Reuters) – The yen slid to a
10-month low against the euro and fell below its 200-day moving
average versus the dollar on Friday, poised for more weakness as
widening yield differences increased the appeal of using the yen
to fund investments in other currencies.

The yen came under renewed pressure after comments from a
U.S. Federal Reserve official gave traders more reason to think
the Fed will raise interest rates before the Bank of Japan,
underscoring the diverging outlook for their monetary policies.

The BOJ will likely 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

Such market expectations have stirred talk of a revival in
the yen carry trade, which involves selling the low-yielding yen
to fund investment in higher-yielding currencies and assets.

“The global economy is in relatively good shape, equities
are performing solidly and volatility has been low,” said Koji
Fukaya, director of global foreign exchange research at Credit
Suisse Securities in Tokyo.

“In this risk-on environment, there is a growing contrast in
monetary policies among the G3, and that situation is likely
leading to some yen carry trades,” Fukaya said, adding that the
dollar could rise to around 86 yen by the end of June.

The dollar rose above its 200-day moving average against the
yen at 83.63 yen for the first time since June, a sign that the
yen’s uptrend may be coming to an end.

Since the Lehman crisis, the dollar has never risen more
than 4 yen above the 200-day moving average, said Masato Chin,
president of Chin Associates, adding that the next possible
target for the dollar is 4 yen above its moving average.

If the dollar rises above that level it would likely signal
that the yen has hit a historic peak with its rise in March,
Chin added.

The dollar was up 0.5 percent to 83.56 yen . 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 peak of 83.98 yen.

The dollar tumbled to a post-World War Two record low of
76.25 yen in March, as the yen surged on the back of market
speculation that Japanese investors may repatriate funds from
abroad after the earthquake.

There has been little sign that such repatriation has taken
place, and the yen later fell back after the Group of Seven
industrialised nations intervened jointly to sell the yen on
March 18. Japan conducted a total of 692.5 billion yen ($8.4
billion) in FX intervention in March, the Ministry of Finance
said on Thursday.


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
on trading platform EBS, the euro’s highest since
against the yen since mid-May 2010. The euro last stood at
118.40 yen, up 0.6 percent on the day.

The dollar gained a lift against the yen after the Wall
Street Journal reported that Minneapolis Federal Reserve
President Narayana Kocherlakota signaled the Fed could raise
interest rates by three-quarters of a percentage point by the
end of the year. [ID:nN31167243]

A recent series of hawkish comments by Fed officials have
helped drive U.S. Treasury yields higher this week and caused
the dollar’s yield advantage over the yen to widen.

Still, not all market players are convinced that investors
have regained their appetite for carry trades just yet.

Kimihiko Tomita, head of foreign exchange at State Street
Global Markets in Tokyo, said there was little sign that global
investors have regained their appetite for carry trades.

“What is happening now is just a reaction to the fact that
the yen had been bought without much meaning,” Tomita said,
referring to the yen’s surge in March that was partly driven by
speculation about possible Japanese repatriation.

Later on Friday, focus turns to the closely watched U.S.
non-farm payrolls report due at 1230 GMT. Forecasts centre on a
rise of 190,000 jobs in March, a Reuters poll showed.

The Australian dollar rose 0.2 percent to $1.0346, hovering
near a 29-year high of $1.0373 hit on Thursday.

(Additional reporting by Hideyuki Sano and Natsuko Waki in
Tokyo; Editing by Kevin Plumberg)

FOREX-Yen withers as yield gap widens, may head to 87 per dollar