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FOREX-Yen rises to 15-yr high vs dlr, Noda to speak

Published 08/24/2010, 04:05 AM
Updated 08/24/2010, 04:08 AM

* Yen rises broadly as market bets on intervention

* Stop losses in euro hit around 107 yen

* Fin Min Noda holds news conference at 0800 GMT

(releads, adds quotes, changes dateline)

By Anirban Nag

LONDON, Aug 24 (Reuters) - The yen struck a 15-year high against the dollar and a nine-year peak against the euro on Tuesday as investors tested the resolve of Japanese authorities to intervene and stem the yen's steady rise.

The yen rose as stop-loss sales were triggered in the euro/yen pair at around the 107 yen level amid talk of macro hedge-fund selling in the euro against the dollar.

Falls in stock markets also helped buoy the yen broadly on the crosses while narrowing yield differentials between U.S. Treasuries and Japanese government bonds dragged the U.S. dollar down against the yen.

"The market has been dipping its toe towards the 85 yen level, knowing full well that the options in front of the Japanese authorities are pretty limited," said Neil Mellor, currency strategist at Bank of New York Mellon.

"Any intervention will have limited shelf life, so now the Bank of Japan has to formulate policies which can undermine the yen's strength. This will not be easy and we could still be headed towards the 105 yen mark for euro/yen."

Japanese Finance Minister Yoshihiko Noda was scheduled to hold a news conference at 0800 GMT.

The euro fell to as low as 106.80 yen on trading platform EBS, its lowest since November 2001, having fallen past support at around 107.27 yen, the trough hit in June. The euro fell to a six-week low against the dollar of $1.2614 on EBS.

The greenback struck a 15-year low of 84.48 yen on EBS, down 0.6 percent. Helping the yen's recent rise against the U.S. dollar was its strong correlation with spreads between two-year U.S. and Japanese government bond yields.

The low-yielding yen is a funding currency for carry trades and can rise in times of market stress or when equities slide.

JAPANESE AUTHORITIES

With the yen hitting a nine-year peak against the euro and a 15-year high against the dollar, traders were wary about the potential for measures by Japanese authorities to stem the yen's rise.

Japanese Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa discussed the yen and agreed to work closely in a phone conversation held on Monday, but Kan did not ask the central bank to ease monetary policy further, and the two did not touch on currency intervention either.

That left the market disappointed after many expected bold moves from the Japanese authorities. Market players say the most likely response from Japanese authorities may be for the BOJ to increase the size or extend the duration of its three-month fixed rate fund supply operation.

But traders were sceptical that Japanese authorities would resort to yen-selling intervention unless the currency's rise picks up more speed.

"Japanese policy makers will be desperate to prevent a break in dollar/yen down to 80 but that looks the trend," Chris Turner, head of fx strategy at ING said in a note.

(Additional reporting by Masayuki Kitano in Tokyo; Editing by Nigel Stephenson)

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