Yen recovers as tame CPI weighs on Aussie

Tokyo, Apr 24: The yen recovered broadly on Tuesday as a second set of surprisingly tame inflation data pushed the Australian dollar lower, dragging down other major currencies including the euro.

The yen was also supported by short covering ahead of Japan's Golden Week holidays starting next week and before key data and a Bank of Japan monetary policy meeting on Friday.

The yen rose to a session high against various currencies, spurred by a 1 percent drop in the Australian dollar against the yen after Australian consumer prices rose just 0.1 percent in the first quarter, well below a forecast 0.6 percent rise.

The tepid CPI figures followed similarly weak producer price data released the previous session, helping to greatly reduce the likelihood of another rise in Australian interest rates next week.

''One clear trend in the last two sessions has been a correction in the Australian dollar against the yen, which is capping the euro's rise against the yen as well as weighing on the euro against the dollar,'' said Hiroshi Niwa, president of Phoenix Securities.

The dollar edged down to 118.50 yen The European single currency fell 0.2 percent against the yen to 160.65 yen staying away from a record high of 162.43 yen hit last week.

The euro was down 0.1 percent at $1.3560 against the dollar relieving the dollar from a two-year low of $1.3638 touched last week.

The Australian dollar fell 0.9 percent to 97.75 yen from around 98.63 yen before the CPI. It hit a decade high above 100 yen last week.

''The possibility of the Aussie/yen rising beyond recent highs might be getting slim,'' said Masaki Fukui, a senior market economist at Mizuho Corporate Bank.

''At the same time, the pair will be underpinned by demand from Japanese investors as many of them are waiting for a chance to buy the Aussie,'' Fukui said.

Japanese individual investors have been tired of low interest rates at home, seeking higher yields abroad.

Against the U.S. dollar, the Aussie dropped 0.8 percent to $0.8250 moving away from a 17-year peak struck last week.

A Reuters poll of 26 analysts found on Tuesday a median 15 percent probability the Reserve Bank of Australia would raise its 6.25 percent cash rate by a quarter of a percentage point after its next policy meeting on May 1. That was down from a 45 percent chance earlier this month.

Eyes On US Data:

Traders said the yen's gains were limited as the BOJ is expected to keep interest rates steady for some time, and the market kept its focus on economic fundamentals and the direction of monetary policy.

''More Japanese investors are shorting the dollar but remain long on currencies such as the Australian dollar and sterling,'' Phoenix's Niwa said.

The euro's fundamental strength is also intact while the outlook for the dollar appears increasingly grim, traders said.

The dollar has been weighed down by expectations that the Federal Reserve will have to cut interest rates later in the year, as market players worry that problems in the housing sector could weigh on consumer sentiment and hobble growth.

The National Association of Realtors issues existing home sales figures for March at 1400 GMT. Economists are forecasting a median 6.45 million units on an annualised basis, compared with 6.69 million units annualised in February.

''If the data comes in stronger than expected, the market reaction may be bigger as a weak number has largely been factored in already,'' a dealer at a Japanese trust bank.

A barrage of Japanese data due on Friday, including consumer prices, industrial output and jobs figures, is not likely to change the market's view that the BOJ will be in no rush to raise interest rates.

The dollar index was at 81.793, within sight of last week's two-year low of 81.507.

Reuters