June 18, 2013 / 2:52 PM / 5 years ago

FOREX-Dollar rallies vs yen on speculation over likely Fed move

* Markets wait for Fed to clarify stimulus stance
    * Bernanke expected to soothe market fears
    * Euro hits 4-month high after German data

    By Wanfeng Zhou
    NEW YORK, June 18 (Reuters) - The U.S. dollar rose for a
second day against the yen on Tuesday as some traders bet the
Federal Reserve may signal it is almost ready to reduce its bond
buying program aimed at propping up the economy.
    But while many in markets see the U.S. central bank trimming
its asset purchases this year, most see higher overnight
interest rates as distant. Analysts say Federal Reserve chairman
Ben Bernanke will try to soothe investor nerves after a two-day
policy meeting ends on Wednesday and that explains the dollar's
rise against the yen.
    Uncertainty about the Fed has led to a sell-off in global
stocks in recent weeks, helping the safe-haven yen to its best
weekly gain in nearly four years against the dollar last week.
    A winding down of the central bank's $85 billion-a-month
bond purchase would boost the dollar, which has been hit by the
Fed's money-printing program over the past several years.
    "The yen's fresh leg lower today could be a sign that many
investors think the Fed will signal a reasonable chance of a
taper as later in the third quarter," said Joe Manimbo, senior
market analyst at Western Union Business Solutions in
    "The yen is seen vulnerable to less policy accommodation
from the Fed, a move that would tend to put upward pressure on
U.S. Treasury yields, burnishing the greenback's allure."
    The dollar rose 1.1 percent to 95.56 yen having hit a
two-month low of 93.78 yen on Thursday. A reported options
expiry at 95.35 yen could keep the pair close to that level.
    The Fed concludes its two-day policy meeting on Wednesday
and Bernanke will hold a press conference after the meeting.
    "Bernanke will try to downplay the tightening impact of
tapering quantitative easing, which could help ease some of the
concerns in the market... this could help dollar/yen head
higher," said Lee Hardman, currency economist at BTMU in London.
    Since Japanese Prime Minister Shinzo Abe called late last
year for radical monetary easing to revive the economy,
dollar/yen has been driven higher by rises in Japanese share
    But worries China is slowing coupled with talk of the Fed
withdrawing stimulus led to a stocks selloff and a sharp rise in
volatility. This drove investors to the yen which tends to
benefit in times of market turmoil. 
    One-month dollar/yen implied volatility jumped to two-year
highs and was last trading at around 15 percent.
    The euro rose 1.2 percent to 127.81 yen.
    Against the dollar, the euro rose 0.1 percent to $1.3385,
having reached a four-month high of $1.3398 after ZEW
data showed German analyst and investor sentiment rose in June.
    European Central Bank chief Mario Draghi said the bank was
"ready to act" if needed, although recent signs of market
stabilization meant monetary policy was proving effective.
    The dollar briefly hit a session peak versus the yen, while
the euro extended gains after data showed U.S. consumer prices
rose in May and a gauge of underlying price pressures showed
signs of stabilizing after a long decline, a potential comfort
to Federal Reserve policymakers who would like to see stronger
    Other data showed an increase in groundbreaking at home
construction site. 
    The dollar index, which measures the greenback versus a
basket of currencies, slipped 0.1 percent to 80.741.
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