Yen gains as BoJ stays neutral on further rate cuts

By Patrick Graham

LONDON (Reuters) - The yen rose more than half a percent against the dollar on Tuesday, helped by a weakening of oil prices which sent investors in search of traditional safe havens and a neutral message from the Bank of Japan on rates.

Six weeks after shocking markets by cutting rates to negative, Governor Haruhiko Kuroda said the Bank of Japan would take time to look at the impact, but it could move again before the cut had worked its way fully into the economy.

While the yen has gained further since the cut in January, it drew some support from the absence of an explicit threat to reduce rates again. Of as much impact was the fall in oil prices and a resulting downbeat start for European stock markets.

"The bias is just in favor of a stronger yen," said Derek Halpenny, European head of global market research at Bank of Tokyo Mitsubishi.

"On the days when we are 'risk on', the yen holds strong and on days like today, it gains. Certainly Kuroda was keen to leave open the potential for further moves but it was probably too much to expect him to be explicit at this stage."

The dollar fell 0.7 percent to 113.05 yen , while the euro slipped about 0.6 percent to 125.62 yen (EURJPY=). The dollar rose as high as 121.70 yen on Jan. 29, immediately after the BOJ's announcement, but has since shed more than 6 percent.

Next up is the U.S. Federal Reserve, which begins its two-day meeting on Tuesday.

A firming of price measures and solid readings from other U.S. data have rekindled market expectations of further tightening this year, and any sign that could still happen in the first half would be liable to aid the dollar, Halpenny said.

Retail sales data on Tuesday will provide another indication of the strength of the U.S. economy.

"We stay of the view that further improving U.S. growth conditions keep the Fed in a position to tighten monetary policy further this year," analysts from Credit Agricole (PA:CAGR) said in note.

"From that angle we believe that dollar dips should still be bought, for instance against the Swiss franc."

The euro edged up slightly to $1.1112 , a cent off last week's one-month high of $1.1218.

The dollar dipped about 0.1 percent against a basket of currencies, with the dollar index (DXY) at 96.53, though it was holding well above a one-month low of 95.938 hit on Friday.