* Dollar/yen pressured by profit-taking
* Support for dollar at around 86.52 yen, Jan. 1 low
* Euro to remain firm vs dollar ahead of ECB meeting
By Anooja Debnath
LONDON, Jan 8 The dollar and the euro fell
against the yen on Tuesday as investors took profit on recent
gains against the Japanese currency triggered by anticipation of
looser monetary policy in Japan.
Analysts and traders said the yen had scope to rebound
further in the coming days, although the prospect of the Bank of
Japan adopting an easing monetary policy soon would limit any
The dollar fell to a session low of 87.23 yen as
investors booked profits on its rally of nearly 12 percent over
about two months which saw it touch 88.48 yen, its highest level
since July 2010.
It was last down 0.4 percent at 87.49 yen, with solid
support expected at around 86.52 yen, the low hit on Jan. 1.
The dollar has rallied against the yen since Japan's newly-
elected government said it would push the Bank of Japan headed
by Governor Masaaki Shirakawa to adopt more forceful monetary
But analysts said investors were nervous of pushing the yen
too much lower due to the risk the BOJ may not opt for
aggressive stimulus as early as its next meeting on Jan. 21-22.
"We still have Shirakawa (as BOJ governor) who is not
leaving until end of March so there is a risk of
disappointment," said Chris Turner, head of FX strategy at ING.
He said that while the dollar could see shallow corrections,
it was unlikely to fall much below 86 yen as there had been "a
major reversal in dollar/yen trend" due to expectations of more
Earlier on Tuesday the euro gained against the yen after
Japanese Finance Minister Taro Aso said the government would buy
bonds issued by the European Stability Mechanism (ESM), the euro
zone's permanent bailout fund. The move was seen
having little impact on the yen.
The euro was last down 0.3 percent on the day at
114.80 yen, having earlier hit a session high of 115.25 yen
after the Aso comments. It stayed below an 18-month high of
115.995 yen set on Jan. 2 on trading platform EBS.
Strategists said the decision would have little impact on
the yen as Japan would most likely buy ESM bonds using existing
"Japan's comments helped euro and dollar/yen a bit higher at
first. But then everyone realised they are just going to use
current reserves so there should actually be no impact," said
Geoff Kendrick, FX strategist at Nomura.
"We will perhaps see a marginal retracement (in dollar/yen)
over the next couple days and I'd be slightly more bearish
dollar over the next few days ... on profit-taking," Kendrick
The euro was flat on the day against the dollar at $1.3114
, above a three-week low of $1.2998 set on Friday. Chart
support was cited just below $1.30, near its 50- and 55-day
Markets are positioned for the European Central Bank to keep
rates on hold when they meet this Thursday.
With no significant economic data due on Tuesday, the euro
would stay in a range ahead of the ECB meeting and Spanish and
Italian bond auctions towards the end of the week.
However, any hint by ECB policymakers about future interest
rate cuts could undermine the currency.
"Markets have backed away from peripheral issues in Europe
for now and unless we start to get broader concerns, euro/dollar
will continue to trade sideways for now," Nomura's Kendrick