|
 Sellers also targeted the euro, which slipped to a new two-year low
against the dollar ahead of a European Central Bank meeting later
this week, which will be watched closely for any indication that
policy will be eased further to shore up the euro zone's flailing
economy.
Those gains helped the dollar reach a new four-year high against a
basket of major currencies <.DXY> of 87.400, adding to gains made
last week on the back of a U.S. Federal Reserve policy statement
that was less dovish than expected.
The dollar surged by 1.2 percent to reach 113.73 yen <JPY=> on
trading platform EBS. That added to an almost 3 percent rise on
Friday after the BOJ raised its monetary base target to an annual
increase of 80 trillion yen from 60-70 trillion yen and tripled the
pace of its buying of risk assets.
The BOJ announcement was followed by news that Japan's $1.2 trillion
Government Pension Investment Fund will raise its holdings of
foreign stocks to 25 percent from 12 percent, a figure that some
analysts said was much higher than expected.
"The question is how high can we go," said Valentin Marinov, head of
European G10 currency strategy at Citi in London.
"The move on Friday was dominated by a yen sell-off across the
board, but ... any move higher from here in the near term would
depend on further dollar outperformance."
The one-month dollar/yen implied volatility - an indicator of how
much currency movement is expected over the coming four weeks -
spiked to a nine-month high <JPYVOL1MO=> as speculators hedged
against sharp moves in the yen.
One-month dollar/yen risk-reversals <JPY1MRR=> - a gauge of demand
for options betting on a currency's rising or falling - moved to
show a bias for dollar strength for the first time since July.
Marinov, however, said that while the market was increasingly
betting on a breakout move that could push dollar/yen up to much
higher levels, the spike in implied volatility was more a knee-jerk
reaction to the scale of the yen's moves over the last two days than
an indication of big price swings to come.
EURO WEAK BEFORE ECB
In a sign of just how bearish sentiment is against the yen, the
struggling euro touched a six-month high of 142.095 yen.
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But against the dollar, the euro fell to as low as $1.2439 in Asian
trading, its weakest since August 2012. It was last trading at
$1.2498, down 0.2 percent on the day.
Euro zone manufacturing activity expanded slightly slower than first
thought last month as further discounts at the factory gate failed
to drive up new orders, a business survey showed on Monday.
Traders suspect the euro will stay on the defensive in the lead-up
to the European Central Bank policy review on Thursday.
"We've had surprises from central banks last week in the form of
(the) Riksbank and the Bank of Japan, and pressure is obviously on
the ECB," said Mitul Kotecha, head of FX strategy, Asia-Pacific for
Barclays in Singapore.
The Riksbank, Sweden's central bank, cut its key interest rate last
week by a bigger-than-expected 25 basis points to a record low of
zero percent to fight persistently low inflation.
The Australian dollar slipped to a two-week low of $0.8703 following
a weak official survey on China's manufacturing sector and a
surprisingly large fall in Australian building approvals. It was
last trading at $0.8718, down 0.9 percent on the day.
(Additional reporting by Masayuki Kitano in Singapore and Ian Chua
in Sydney; Editing by Andrew Heavens and Susan Fenton)
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