* Yen falls broadly, EUR/JPY hits 10-month high
* Market focus on rate differentials
* Asset managers go tentatively long carry trades
(Recasts, updates prices, adds detail, comment, changes dateline, previous LONDON)
NEW YORK, March 30 (Reuters) - The yen slipped to a 10-month low versus the euro and was broadly weaker on Wednesday as recent hawkish comments from euro zone and U.S. officials contrasted with Japan's loose monetary policy stance.
The euro rose to around 117.28 yen
Rising risk appetite encouraged investors to seek
higher-yielding assets, with the Australian dollar rising to a
29-year high over its U.S. counterpart
The U.S. dollar rose to around 83.19 yen
Traders reported offers at 83.30/50, with orders then said to be thin until more supply placed at around 84.00.
The dollar briefly trimmed gains against the euro and yen on Wednesday after data showed the U.S. private sector added jobs in March in line with expectations. [ID:nN30284764].
"The new high in the Australian dollar combined with weakness in yen suggest that the carry trade is building momentum," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto. "This could put significant weakening pressure on yen, but we would not be surprised to see some dollar/yen downside (yen strength) on the back of ongoing repatriation in late in April."
Hawkish comments in recent days from U.S. Federal Reserve and European Central Bank officials contrasted with the stance taken by the Bank of Japan, which is set to leave interest rates near zero for some time to support the world's third-largest economy as it recovers from the effects of the earthquake.
Dallas Fed President Richard Fisher said on Tuesday he would vote against further monetary easing after the Federal Reserve's $600 billion bond buying programme ends in June. [ID:nN2984973]
That pushed up short-dated U.S. Treasury yields, widening their differential with Japanese ones as investors took the comments as an indication of eventual monetary tightening.
"The yen is very sensitive to rate differentials, and with U.S. short-end yields going up on expectations the Fed will at some point raise rates, the dollar is rising against the yen," said Marcus Hettinger, global currency strategist at Credit Suisse in Zurich.
The comments supported the U.S. dollar across the board,
nudging the euro
Credit Suisse's Hettinger said dollar gains may be short-lived as an actual rate rise by the Fed is still expected to be a long way off, while expectations the ECB will raise rates next month and beyond would continue to support the euro.
Such anticipation has pushed the euro more than 5.0 percent higher against the dollar this year, and its apparent resilience to fiscal problems facing weak euro zone countries has led some to nickname it the "Teflon euro".
"I would be confident in the euro at these levels," said Pierre Lequeux, head of currency management at Aviva Investors. "I like the euro, basically, and I see some upside."
AUSSIE SHINES
Speculation that Japanese investors may reduce dollar hedging positions related to their overseas investments, and the absence of huge repatriation flows following the quake, are shifting the focus back to economic fundamentals and reinforcing the yen's status as a funding currency.
"We're seeing asset managers and hedge funds starting to dip their toes back into carry trades, but it's quite tentative at this stage," said Geoffrey Yu, currency strategist at UBS, in an interview with Reuters Insider. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
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The market's focus on rate differentials benefited
higher-yielding currencies including the Australian dollar
The Aussie traded at 85.56 yen after earlier climbing to a
10-month high