The yen steadied on Monday and began the week well above last week's lows, as investors looked past the Bank of Japan's expected easing steps and focused on US economic factors. Traders expect overnight activity might be thin as Hurricane Sandy is expected to slam into the US East Coast on Monday night.
US stock and options markets will be closed on Monday, and possibly Tuesday, as regulators, exchanges and brokers worry about the integrity of markets and the safety of employees. At its meeting on Tuesday, the Bank of Japan is expected to further ease monetary policy and might make a stronger commitment to continue pumping in cash until its 1 percent annual inflation target is achieved, sources have said.
"BoJ easing expectations were a big factor for markets last week, but are not having much impact this week, with the likely outcome already factored in," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo. Japan's central bankers broadly agree on the need to expand stimulus for the second straight month, most likely by increasing the BoJ's asset buying and lending programme by at least 10 trillion yen ($125 billion).
Ahead of the meeting, data on Friday showed currency speculators had raised their bets against the yen, with the market posting a net short position for the first time since May. "There are still doubts about the strength of the US economy, even after Friday's better-than-expected growth data, and until these worries are dispelled, the trend is unchanged and dollar/yen will likely stay in its recent range," Murata said.
Data on Friday showed US GDP grew at a 2 percent annual rate in the third quarter, slightly above a 1.9 percent forecast, but still short of what economists believe is needed for a substantial rise in employment. The US government will release October's key nonfarm payrolls report this Friday. Analysts said the report could influence the tight presidential election contest.
Still, some said that yen bears still have room to run, no matter what the BOJ outcome. Should central bank even refrain from easing as strongly as the market expects, futures and options market data suggests the yen's underlying bear trend will remain intact. "Expectations of BOJ easing aren't the only factor that contributed to the weaker yen. Of course there was that, but there was also the Softbank deal," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ, referring to Japan's Softbank Corp's (9984.T) move this month to buy a controlling stake Sprint Nextel Corp of the US for $20 billion.
The dollar bought 79.72 yen, up about 0.1 percent from Friday's late New York levels, but well below Friday's four month high of 80.38 yen. The greenback remains well above its early October low of 77.79 yen, with support cited at its 200-day moving average, now at 79.51 yen. The euro bought 102.97 yen, down about 0.1 percent, well off a six-month peak of 104.59 yen reached on October 23.
Against the dollar, the single currency fetched $1.2919, remaining solidly within its $1.2800/3200 range since mid-September. Traders await Spain's request for a bailout, which would initiate the European Central Bank's bond-buying programme and could push the euro out of its recent range. Investors also kept a wary eye on Greece, after the country's opposition leader said his party would vote against an austerity package expected to go before parliament this week, though he said on Friday he would not seek to bring down the government.
The Australian dollar fell 0.2 percent to $1.0354, holding above its October 23 low of $1.0236 but moving away from its October 18 peak of $1.0412. A break there would bring the September 14 high of $1.0625 in view. Australia's central bank may have been leaning against the local dollar through sales to counterparts abroad and, while the amounts are small, it would be another sign of frustration with the strength of the currency. While it has not intervened openly to push down the Aussie, it has accumulated a net A$863 million worth of foreign currency over August and September. That compares to an average monthly increase of around A$54 million since the start of 2010.