The yen began the week on a shaky footing on Monday, with the dollar on track to take out the elusive 100 level, after the Group of 20 countries refrained from criticising Japan's reflationary policies that have significantly weakened its currency. The dollar climbed to as high as 99.90 yen, within striking distance of a four-year high of 99.95 set on April 11 and the psychological 100 level, where option barriers are said to be lined up.
While a break there could trigger stop-loss buying, selling from option players and Japanese exporters blocked the dollar's advance. Data last Friday showed currency speculators raised their bets against the yen in the week ended April 16, while lifting positions in favour of the US dollar.
In a communique after a two-day meeting, the G20 simply said it would be "mindful" of possible side effects from extended periods of monetary stimulus, without singling out Japan as some in the markets had feared. Finance Minister Taro Aso said Japan's radical economic policies have led to a cheaper yen but only as a by-product of stimulus steps to pull the country out of deflation.
"The G20 reiterated the call to avoid competitive devaluations of currencies and said monetary policy should be aimed at domestic price stability," said Vassili Serebriakov, strategist at BNP Paribas. "This could be seen as a 'green light' for the BoJ that should be easily able to justify current policy on the grounds that it fights entrenched deflation."
The yen has weakened 23 percent against the dollar since mid-November, when Shinzo Abe, who became Prime Minister in December, promised bold monetary and fiscal expansionary policies during his election campaign. The BoJ's sweeping monetary expansion unveiled earlier this month, which aims to inject $1.4 trillion into the economy in less than two years, has given fresh momentum to yen bears.
Many market players expect the BoJ's massive bond buying to force real-money Japanese investors such as life insurers to shift more funds to higher-yielding foreign bonds but some market players said there is room for disappointment. The euro also rose against the yen, reaching 130.70 from around 129.98 late in New York on Friday. It was nearing a three-year peak of 131.10 set earlier in the month. Against the dollar, the euro ticked up slightly to $1.3065 after pulling back from a session high of $1.3130 on Friday. The euro, which failed to break above $1.3200 recently, has been stuck in a $1.3000/3200 range in the past week or so.
Political uncertainty in Italy had kept a lid on the euro but the country's re-election of a president on Saturday has raised the prospect of an end to the two months of political stalemate that followed a general election. The common currency had also been hamstrung by persistent talk of an interest rate cut by the European Central Bank. ECB Governing Council member Ewald Nowotny on Saturday said it was too early to judge whether a cut is needed. After a horror week for commodity currencies, the Australian dollar last stood at $1.0304., up 0.1 percent on the day but still not far off a one-month trough of $1.0268 plumbed on Thursday.
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