* Dollar pressured against the yen, support at Jan. 1 low
* Euro to remain firm vs dollar ahead of ECB meeting
NEW YORK Jan 8 The dollar and the euro slipped
against the yen on Tuesday as more investors bet recent gains
were too far, too fast even with current expectations for
looser monetary policy in Japan.
Analysts and traders said the yen had scope to rebound
further in coming days, although gains will be capped by
investor expectations that the Bank of Japan will ease monetary
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
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 FX focus has been on plans for Japanese stimulus,
rumoured to be $228 billion and the finance minister's comment
that he favours buying foreign bonds, including the ESM, with FX
reserves," said Camilla Sutton, chief currency strategist, at
Scotia Capital in Toronto.
The dollar fell to a session low of 87.21 yen after a
rally of nearly 12 percent in recent months which saw the
dollar touch 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.
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
The euro was last down 0.35 percent on the day at
114.44 yen, having earlier hit a session high of 115.21 yen
after Finance Minister Aso's comments. The session high was
still below an 18-month high of set on Jan. 2.
The initial move faded as the finance ministry's decision
would have little impact on the yen as Japan would most likely
buy ESM bonds using existing foreign reserves.
"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.
The euro was down 0.2 percent on the day against the dollar
at $1.3088, still almost a cent above a three-week low
set on Friday.
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," said Geoff Kendrick,
FX strategist at Nomura in London.