FOREX-Yen slumps versus dollar, euro on policy easing view

27/12/2012 14:29 AST

The yen tumbled to a more than two-year low against the dollar and a 16-month trough versus the euro on Wednesday after Japan's new prime minister repeated his vow to battle deflation and a strong Japanese currency.

Expectations that Shinzo Abe, who took office on Wednesday, will force the Bank of Japan to ease monetary policy further have caused steep losses in the yen, putting it on track for a drop of more than 10 percent this year, the biggest since 2005.

Trading volume was thin as many global financial centers remained closed for the Christmas holiday. All G10 markets except Japan were closed on Tuesday, with only Japanese and U.S. markets open on Wednesday.

Abe promised aggressive monetary easing by the Bank of Japan and big fiscal spending by the debt-laden government to fight deflation and weaken the yen to make Japanese exports more competitive. Investors will wait to see if the talks will be backed by policy action.

"Since the yen's sharp sell-off has come mostly from jawboning on the part of Mr. Abe, the yen could soon find its scope for further depreciation may slow in the absence of policy initiatives by the country's new administration," said Joe Manimbo, senior market analyst at Western Union Business Solutions, in Washington.

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