The yen bobbed around a nearly four-year low against the dollar on Wednesday, but the momentum created by the Bank of Japan's ambitious monetary expansion campaign was not quite enough to push it over the 100-yen level yet. The Aussie pared gains after chalking up a 2-1/2 month high of $1.0518 on news Chinese imports surged 14.1 percent on the year, well beyond market expectations, overtaking exports to create a mild trade deficit. It was last up 0.1 percent at $1.0496.
The dollar was steady at 99.09 on trading platform EBS, after rising as high as 99.67 yen on Tuesday, its strongest level since May 2009. Technical resistance lies at 99.73 yen, the 50 percent retracement of the dollar's drop from its June 2007 high of 124.14 yen to its record low of 75.311 yen set in October 2011. Traders said options barriers are thickening around the 100-yen level.
"Dollar/yen failed to make a run for 100 over the past 24 hours but this does not mean the currency pair will not try again before the end of the week," said Kathy Lien, director at BK Asset Management in New York. "We believe that it will only be a matter of time before this level is taken out," she said in a note to clients. The dollar has jumped around 7 percent against the yen since the BoJ said last Thursday that it will pump about $1.4 trillion yen into the economy and double Japan's monetary base in two years to defeat deflation.
The move was even bigger than yen bears had hoped for, and prompted many strategists to rejig their forecasts in favour of the greenback. "The BoJ has shown a strong commitment, which lit a fire under the dollar-yen's feet," said Kyosuke Suzuki, director of forex at Societe Generale.
The euro was flat against the yen at 129.70 after rallying around 4 percent since the BoJ announcement to 130.09 yen on EBS on Tuesday, its highest level since January 2010. The common currency was also steady at $1.3075 after hitting $1.3100 on Tuesday, its highest since March 15.
There have been murmurs that plummeting Japanese bond yields have already sent Japanese investors in search of higher yields overseas, helping push French, Dutch, Austrian and Belgian bond yields to record lows. However, many market participants were sceptical, given that Japanese institutional investors are known for their cautiousness, and said the flows were more likely driven by speculators buying in anticipation of their arrival. "There is a lot of talk about Japanese investors moving abroad, but it's hard to see them heading for junk bonds from the likes of Spain or Portugal. They're unlikely to buy Bunds either as they don't offer any yield," said Suzuki of Societe Generale.