USDJPY Buys Resume after Profit Taking

The U.S. Dollar firmed against the Japanese Yen during the Asian trading session after a fall from a 2½-year peak encouraged traders to buy the greenback on the dip. The Dollar had been under increasing pressure given its 12% gain on the Yen over the past two months, and analysts had expected a pullback even though the overall trend remains unchanged. The Bank of Japan’s outlook continues to be one of aggressive monetary policy and that is weighing heavily on the Yen. It is expected that the Japanese central bank will set a 2% inflation rate target at its next policy meeting later this month, with a simultaneous pledge by the government to step up monetary easing efforts.

As reported at 1:11 p.m. (JST) in Tokyo, the USD/JPY pair was trading at 87.38 Yen, a gain off 0.3%, after slipping to a session low of 86.83 Yen which was a 1.9% decline from the July 2010 peak of 88.48 Yen. One currency strategist in Hong Kong confirms that dollar buying increased, but the precise timing of a rise in dollar demand suggested that it was Japanese importers doing most of the buying. The EUR/JPY pair also traded 0.3% higher at 114.19 Yen, but well off the 18-month peak set on January 2nd on the EBS trading platform when the pair hit 115.995 Yen.