* Yen bulls wary of more BoJ action
* Market sceptical of intervention effect longer term
* Euro hits four-month high vs dlr, EU summit eyed
(Recasts, adds details, previous SINGAPORE/SYDNEY)
By Anirban Nag
LONDON, March 21 (Reuters) - The yen extended losses on
Monday, with speculators wary of pushing it higher against the
dollar as such a move could draw more coordinated yen-selling
intervention by the Group of Seven countries.
Analysts said the first joint G7 intervention since 2000 on
Friday was working for the moment, and that they saw the effort
as primarily aimed at dampening market volatility. Japan markets
are off on Monday, sapping liquidity even further.
"Dollar/yen will be supported in the near term with the
market wary of more intervention," said Hans-Guenter Redeker,
chief fx strategist at BNP Paribas.
"The central banks have drawn a line in the sand, and I
think it has made a psychological impact on the markets, which
are unlikely to take dollar/yen down to 76.25 yen again in the
short term."
The dollar rose 0.6 percent from late U.S. trade on Friday
to 81.10 yen <JPY=>, building on gains made in the previous
session, with traders citing stops building in the 80.50 yen
area while offers were at 81.30/50 yen.
The euro was also 0.5 percent higher on the yen at 114.93
yen <EURJPY=R>, while the common currency was flat on the dollar
at $1.4163, having hit a four-month high of $1.42.
At one point on Friday, the dollar had surged nearly 4
percent on the day against the Japanese yen to 82.00 yen as G7
central banks undertook concerted yen-selling.
The G7's joint intervention on Friday came after the yen
jumped to a post-World War Two record of 76.25 yen to the dollar
the previous day. Stop-loss dollar selling linked to option
barriers and long liquidation by Japanese retail margin-traders
had helped to fuel the U.S. currency's fall against the yen.
Traders and analysts say the Bank of Japan, the European
Central Bank and Bank of Canada together conducted around $32.3
billion worth of yen-selling intervention on Friday. Estimates
for the Bank of England and the U.S. Federal Reserve were not
immediately available. []
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Yen in forex reserves http://link.reuters.com/rah68r
G7 intervention http://link.reuters.com/sub68r
G7 cenbanks launch intervention: []
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There has also been market speculation that Japanese
insurers may repatriate funds from abroad to pay policyholders
after the devastating earthquake and tsunami on March 11,
although they are thought unlikely to sell a large amount of
foreign assets. []
The intervention has succeeded in bringing down the implied
volatility on dollar/yen as investors saw less need to hedge
against a further yen rise for now. The implied volatility on
one-month dollar/yen <JPYVOL> traded at around 13 percent, well
off the highs of about 21 percent on Thursday.
RETURN OF CARRY TRADES?
A trader for a U.S. bank in Hong Kong said the Bank of Japan
is likely to sell the yen again if the dollar drops below 80.00.
"You have to think the line in the sand is 80, at least
79.50. It would be embarrassing if it got below there," the
trader said.
The yen dipped broadly and the Australian dollar rose nearly
1 percent to 81.37 yen <AUDJPY=R>, with risk sentiment improving
despite the air strikes in Libya by Western powers.
[].
BNP's Redeker said positive risk appetite and expectations
that Japanese money market rates will remain low, and the Bank
of Japan putting a cap on the yen's rise, meant conditions were
supportive for yen-funded carry trades.
Traders cited robust demand from Japanese retail investors
in the Australian and New Zealand dollar, both of which are
considered favourites amongst this set of investors.
One factor supporting the Japanese currency is that no one
seems to favour the dollar at the moment. The dollar fell to a
15-month low against a basket of major currencies of 75.536
<.DXY> earlier on Monday.
"The dollar has problems of its own with the Fed loose
monetary policy very much in place and the U.S. grappling with
its own fiscal problems," said Jane Foley, senior currency
strategist at Rabo Bank.
The euro briefly hit a four-month high of $1.4200 <EUR=>
against the dollar as the euro zone looked set to officially
agree bolstering its bailout fund at a March 24-25 EU summit.
(Additional reporting by Masayuki Kitano and Ian Chua; Editing
by Catherine Evans)
