Yen Firms as Japan Dismisses Foreign Bond Purchase Plans

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By Prasanth Aby Thomas | February 19, 2013 2:18 PM EST

The yen snapped its downward spiral against the dollar early in the day as Japanese lawmakers appeared to dismiss foreign bond purchases by the country's national bank.

The dollar eased 0.4 percent to 93.60 yen, moving further away from the 33-month peak of 94.47 yen touched in the previous week. The euro eased about 0.3 percent to 125.00 yen, after touching a 34-month high of 127.71 yen earlier this month.

Earlier this week the yen had turned bearish again after a break as the G20 group of ministers refrained from making direct comments at Japan's aggressive efforts to weaken the currency, despite the issue of 'currency wars' being a main discussion agenda.

Japanese Prime Minsiter Shinzo Abe had also indicated that foreign bond purchases could be a monetary easing option, boosting stimulus optimism.

But sentiments dampened and the yen turned bullish after Finance Minister Taro Aso said at a press conference that he was not looking at buying foreign bonds. Economy Minister Akira Amari stoked concerns further, suggesting that Abe's comments referred to the monetary policy options that nations generally consider.  

"The fact that the dollar/yen couldn't break above last week's high yesterday points to the strength of the resistance," Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ told Reuters.

However, it is not just the political rhetoric that is affecting the yen's movement at the moment. Analysts point out that traders are maintaining a cautious stand ahead of the announcement of the next Bank of Japan governor.

The decision on the next central bank chief could prove crucial to Abe's heavy monetary stimulus promises that had helped him to achieve a landslide victory at the recent elections.

"We expect the selection of a nominee for BOJ governor to have a significant market impact, particularly on JPY rates," said Naka Matsuzawa, strategist at Nomura Research in Tokyo.

An announcement on the matter is expected as early as this week, but reports now suggest that the decision could be delayed until the coming week as a government spokesman suggested that it may happen by February end.  

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