SYDNEY The yen resumed its decline on Wednesday as investors piled back into the easy one-way trade as the market bet that a more dovish Bank of Japan governor will soon be installed to push through aggressive easing measures.
The Japanese currency came under renewed pressure after BOJ governor Masaaki Shirakawa on Tuesday announced he will step down on March 19, three weeks before his five-year tenor ends in April.
Prime Minister Shinzo Abe, who has put the BOJ under intense pressure to do more to spur the economy, has made it abundantly clear he wants someone in the job who will be bolder than the outgoing BOJ chief in loosening monetary policy.
The dollar and euro both surged to fresh 2-1/2 year highs at 93.79 yen and 127.43 respectively, steadily moving towards their 2010 peaks around 94.99 and 134.37.
The Australian dollar, and even a subdued sterling, also pounced on the yen, with the Aussie reaching a 4-1/2 year peak around 97.42 yen. The pound touched a 3-year high near 147.25 yen.
"The Bank of Japan is about to get a lot more dovish, and sooner than previously thought," said Christopher Vecchio, a currency analyst at DailyFX.
Vecchio said the BOJ could accelerate the timeline for open-ended asset purchases, increase the size of the asset purchases or extend the maturity of bonds under its current asset purchase programme, measures yet to be fully priced into the yen.
The near 2-percent rally in euro/yen helped the single currency strengthen against the dollar as well. It rose to $1.3585, bouncing off a one-week low of $1.3458.
Euro bulls had turned cautious earlier in the week, worried that the European Central Bank might do or say something to weaken the single currency at Thursday's policy meeting.
While the ECB has been relatively upbeat about the outlook for the euro zone, a strengthening euro is unwelcome in a region still largely mired in recession.
A survey on Tuesday showed the euro zone's economy is probably recovering but the gulf between its two biggest members has widened, a development that will no doubt worry policymakers.
Sterling saw only partial relief ahead of the Bank of England's own policy meeting on Thursday. It fell to a fresh 5-1/2 month low around $1.5630 as concerns about the economy prompted some marginal talk that the central bank could opt for further quantitative easing to stimulate growth.
The consensus forecast, however, is for the BOE to stand pat. The market is also keenly waiting to hear what incoming BOE Governor Mark Carney has to say when he testifies before a parliamentary committee on Thursday.
Any dovish slant could see the pound come under further pressure, mirroring the Australian dollar which eased after the Reserve Bank of Australia on Tuesday kept a clear easing bias even as it left rates steady.
The Aussie was last at $1.0386, having fallen as far as $1.0370. A break of $1.0361 will take it back to lows not seen since late December.
Traders said the market could target the downside if Australian retail sales data due at 0030 GMT surprised on the downside.
(Reporting by Ian Chua)