* BOJ injection underpins dollar/yen
* Dollar/yen outlook still negative
* Traders wary of possible BoJ action
* One-month dollar/yen implied vols spike
(Updates prices, adds quote, more BoJ news)
By Gertrude Chavez-Dreyfuss
TOKYO, March 14 (Reuters) - The dollar rebounded from
near-record lows against the yen on Monday, boosted by hedge
fund buying as the Bank of Japan's huge infusion into money
markets helped ease nervousness triggered by the massive
earthquake and tsunami in northeast Japan.
The plunge in the Nikkei share average
also prompted a sell-off in currencies that thrive when there
is increased risk appetite, such as the Australian and
New Zealand dollars .
The yen had advanced sharply on Friday on talk of
repatriation flows as the disaster unfolded and was seen likely
to extend gains especially if Japanese insurers try to raise
funds by selling overseas holdings.
On Monday, the country was battling to prevent a nuclear
catastrophe and to care for millions of people without power and
water.
The greenback tumbled as low as 80.60 yen on electronic
trading platform EBS, 1 yen away from a historic trough of 79.75
yen hit in 1995 . But news of the BOJ's offer to inject a
record $183 billion into the money market helped the dollar pull
away from the day's low. .
The BOJ also further eased its monetary policy on
Monday and committed to increase the size of its fund pool for
buying assets and conducting market operations backed by
collateral by 5 trillion yen, to 40 trillion yen.
.
"The force from monetary policy --
liquidity injections and increased risk of FX
intervention -- will partially offset a
temporarily more yen- supportive
capital flow picture ," said Jens
Nordvig, global head of G10 FX strategy at Nomura Securities
International Inc in New York.
Overall, the bias on dollar/yen remains negative.
Crucial to dollar/yen's near-term direction is the size and
financing sources for Japan's reconstruction. While there are no
precise figures on the size of the country's reconstruction
efforts, the source of financing is more straightforward.
Analysts said funding to rebuild Japan's tsunami-affected
areas could come from a combination of public bond issuance or
asset liquidation by Japanese insurance companies in overseas
markets, moves that will likely strengthen the yen.
The dollar rose as high as 82.469 yen on electronic trading
platform EBS, rallying from 80.60 yen , the lowest
since early November. By mid-afternoon Tokyo trading the dollar
was at 82.06 yen, up 0.2 percent.
Initial support this week is at 81.57, analysts at
ActionForex.com said. A break of 81.57 yen would make a target
80.93 as the next support, and a subsequent breach of 80.93
would signal the resumption of a downtrend.
On the upside, analysts said there is minor resistance at
82.38 and a move above that would turn the pair's bias to
neutral from negative. That would suggest that the sideways
consolidation from 80.29 is still in progress.
In line with the steep fall in dollar/yen earlier in
the global session, one-month implied volatility in the pair
also spiked to a roughly four-month high at 11.75 percent
, from Friday's 9.65 percent.
One-month 25 delta risk reversals, a barometer of risk
sentiment, favoured dollar put/yen call options, suggesting
increased bullishness on the Japanese currency. On Monday,
dollar/yen risk reversals were quoted at 0.85/1.35 vols
.
The euro also recovered 0.4 percent to 114.35 yen from a low
around 112.62 yen .
A senior finance ministry official reiterated that Japan
would take decisive measures on currencies if needed, when asked
about the yen's strengthening against the dollar in the wake of
Friday's devastating earthquake.
"The bottom line is it would be highly unlikely for Japanese
authorities to allow dollar/yen to fall sharply today. So on
that basis, it's going to be a nervy day but the downside is
going to be limited for dollar/yen," said Greg Gibbs, strategist
at RBS.
Meanwhile, the euro firmed against the dollar after
European Union policymakers surprised markets over the weekend
by reaching some significant agreements ahead of the March 24-25
heads of state meeting.
Essentially, the summit agreed to
increase the lending capacity of the European
Financial Stability Fund to its full limit of 440 billion euros
and also lowered the interest rate charges for EFSF
loans .
The euro was last at $1.3930 , up 0.2 percent on
the day.
Currency bid prices at 2:17 a.m. EDT (0617 GMT). All data taken
from Reuters calculated from the levels at 4:30 p.m.(2030 GMT)
in the previous New York session.
Last US Close Pct YTD Pct 2010
March 11 Change Change Close
-------------------------------------------------------------
Euro/dlr 1.3935 1.3907 +0.20 +4.17 1.3377
Dlr/yen 82.070 81.890 +0.22 +1.13 81.150
Euro/yen 114.38 113.91 +0.41 +5.29 108.63
Dlr/swiss 0.9282 0.9292 -0.11 -0.57 0.9335
Stg/dlr 1.6070 1.6079 -0.06 +3.02 1.5599
Dlr/cad 0.9732 0.9715 +0.17 -2.36 0.9967
Aus/dlr 1.0082 1.0143 -0.60 -1.19 1.0203
Euro/swiss 1.2940 1.2926 +0.11 +3.62 1.2488
Euro/stg 0.8668 0.8646 +0.25 +1.12 0.8572
Nzd/dlr 0.7397 0.7430 -0.44 -5.06 0.7791
Dlr/Norw 5.5900 5.5943 -0.08 -3.98 5.8218
Euro/Norw 7.7933 7.7858 +0.10 +0.05 7.7895
Dlr/Swed 6.3325 6.3385 -0.09 -5.62 6.7098
Euro/Swed 8.8245 8.8210 +0.04 -1.74 8.9809
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(Additional reporting by Ian Chua in Sydney; Editing by Michael
Watson)
