Yen rebounds on Japan minister’s remarks

LOS ANGELES (MarketWatch) � The yen rebounded against the dollar on Tuesday after the Japanese finance minister denied that Tokyo was considering purchasing foreign bonds, a move that would likely put further pressure on Japan�s currency.

The dollar USDJPY fell 0.3% to 93.45 yen. But the euro EURJPY managed to turn slightly higher, at �125.12.

�When politicians hold such a firm grip on the currency like the Japanese officials do, then one must expect volatility,� said Kathleen Brooks, research director at Forex.com in London.

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Taro Aso, Japan�s finance minister, said at a news conference Tuesday that the government wasn�t considering foreign-bond purchases as part of monetary-easing measures.

Aso�s remarks came just a day after Prime Minister Shinzo Abe said such bond purchases � which could further weaken the yen as the nation buys assets denominated in another currency � were among the monetary-easing options available to the Bank of Japan.

Economy Minister Akira Amari played down the contrast in Aso�s and Abe�s comments, saying that Abe�s remarks the previous day simply referred to policy options that countries have in general, according to a Reuters report.

Abe has been pushing Japan�s central bank to adopt more aggressive measures to lift the country from an era of falling prices. Over the weekend, the Group of 20 industrial and developing nations opted not to criticize Japan for policies that have dragged heavily on the yen in recent weeks. A weaker currency usually gives that country�s exporters an advantage over their competitors. Commentary: First rule of currency war: Don't say currency war.

Reports of a rift

The comments attributed to Abe and Aso �only underscore the reported rift� between the two over their choice of candidates for the Bank of Japan�s next governor, said Sue Trinh, a senior currency strategist at RBC Capital Markets.

Trinh noted speculation that Aso favored Toshiro Muto, who is seen as a moderate for his monetary-policy preferences, while Abe is believed to be favoring Kazumasa Iwata, who last year proposed setting up a fund to invest in foreign securities.

Reuters

Incumbent Bank of Japan Gov. Masaaki Shirakawa has said he plans to step down from his post on March 19.

Meanwhile, the euro EURUSD rose 0.4% to $1.3391, finding support after a stronger-than-expected rise in the ZEW gauge of German investor sentiment. The index rose to its highest level since April 2010. See: German Feb. ZEW expectations index rises.

Fed minutes due Wednesday

Two separate gauges of the dollar�s movements slipped Tuesday. The ICE dollar index DXY , which measures the greenback against a basket of six major global currencies, turned 0.2% lower to 80.450. The WSJ dollar index XX:BUXX , which captures the dollar�s moves against a slightly wider basket of rival units, lost 0.3% to 71.84.

A potential driver for the dollar this week will be Wednesday�s release of minutes from the U.S. Federal Reserve�s meeting in late January, analysts at Brown Brothers Harriman told clients Tuesday. See previous story about the Fed's January meeting.

There�s �much anticipation� that monetary policy makers began to talk about how to exit from the Fed�s quantitative easing program, the Brown Brothers Harriman analysts said. But given the Fed in December announced the more than doubling of its outright long-term asset purchases, �we think that it is far too early to take seriously exit talk, except of course in the broadest of terms, as it is always prudent to have well thought-out exit strategies,� they wrote.

�This is especially true given that the full impact of the payroll saving tax is not fully understood yet and the sequester, which could shave around 0.5% [...] off U.S. GDP, is looming,� they wrote, adding that the 0.5% rate is more than what most European countries will likely expand by this year.

The sequester refers to a plan to cut billions of dollars in U.S. federal spending beginning on March 1. More on the pending sequester cuts.

In other moves, the British pound GBPUSD was 0.3% lower at $1.5427 while the Australian dollar AUDUSD rose 0.5% to $1.0358.