The yen slid against the dollar on Thursday, edging closer to a four-month low on the back of an increasingly grim outlook for the Japanese economy and importers selling the currency. Traders said many investors were seeking to buy the dollar on any dip in its value, targeting a rise to 83-84 yen in the coming months as bets grow that the Bank of Japan will have to take additional monetary easing measures to fight off deflation.
Recent Japanese data, and most corporate earning reports, have been soft and third-quarter gross domestic product, due on November 11, is also likely to contract - all of which should see the yen cede ground, strategists said. "We are long dollar/yen because the data out of Japan, the corporate earnings, have all been pretty weak and will put pressure on the BOJ to ease," said Stuart Frost, head of Absolute Returns and Currency at fund managers RWC Partners.
"We will look to buy on dips, targeting a rise to 80.60 yen. It will be an eventual grind higher towards 84." While much attention has focused on government debt problems in the US and Europe, Japan faces its own mini fiscal cliff, although the government is ready to strike a deal with the opposition to pass a critical bill to prevent a severe funding squeeze.
The dollar touched a high of 80.13 yen and inched towards the four-month high of 80.38 struck last Friday. It last stood at 80 yen, up 0.3 percent on the day. The yen had risen on Tuesday after the BOJ increased its asset purchase programme by 11 trillion yen, a move that was roughly in line with market expectations.
That disappointed some investors who had positioned for a bigger increase and drove them to pare their long dollar/short yen positions. Traders said the catalyst for the latest gains were large bids from a Japanese importer. Analysts said corporate currency flows tend to favour the dollar these days because of Japan's trade deficit - a change from just a few years ago when exporters' yen buying dwarfed importers' yen selling.
Nonetheless, dollar offers from Japanese exporters above the four-month high suggest further gains for the US currency are likely to depend on US payrolls data on Friday revealing strong jobs growth. The Institute for Supply Management's factory activity index and the ADP employment figures out of the US later on Thursday could create some volatility in the dollar.
If the employment and manufacturing activity data disappointed the dollar could give up some of its recent gains. "While today's US data will probably have only a marginal impact on the dollar, an easing in the figures could still weigh on the currency," said Stephen Lewis, chief economist at Monument Securities. The US presidential election on November 6 was also in focus. Some in markets say victory for Republican candidate Mitt Romney could lift the dollar.