TOKYO/SYDNEY: The yen carved out a fresh 3-1/2-year low versus the dollar on Tuesday and fell to a 4-1/2-year trough on the Australian dollar as traders bet the Bank of Japan's stimulus may be bolder and come sooner than expected.
The Nikkei business daily reported the nominee for BoJ governor, Haruhiko Kuroda, had hinted on Monday he may launch new monetary easing steps soon after he takes office next week, rather than wait for his first scheduled policy meeting on April 3-4.
In addition, the minutes from the BoJ's February meeting, where it kept its policy on hold, showed some board members considered buying JGBs with longer remaining maturities as an option.
"The minutes showed buying longer-dated bonds were discussed even among the current board members. The market has priced in more buying in bonds with up to five years to maturity. But if the BOJ is to go beyond that, that's not priced in yet," said Minori Uchida, chief currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
The dollar rose as high as 96.71 yen, pipping the previous high of 96.60 and last stood at 96.57 yen, a gain of 0.3 percent from late US levels.
The moves also came against a backdrop of optimism on the US economy, with the Dow closing at yet another record high, while Wall Street's "fear gauge", the CBOE Volatility Index, hit its lowest since February 2007.
Positive risk sentiment, fuelled by Friday's solid US jobs data, also lifted yields on US Treasuries, which tend to have strong positive correlation with dollar/yen as higher yields are thought to attract more bond investments in that currency.
"Dollar/yen was already very bid overnight, consistent with the backup in US Treasury yields. The Nikkei story has just given it a bit of a kick and it's certainly adding to yen weakness," said Sue Trinh, senior currency strategist at RBC in Hong Kong.
"Speculation of an inter-meeting easing is probably going to be a focus on the day. It won't be unprecedented to call an unscheduled meeting...it's not about emergency easing but if he were to do so, it's more symbolic and a signal to markets that he does mean business."
The BoJ's current chief Masaaki Shirakawa has said he would step down on March 19 with two deputy governors. The parliament is expected to approve Kuroda as the next governor by then to avoid a policy vacuum.
"We had thought 95-96 yen would be the top of the range for the dollar, based on purchasing power parity, trade balance and interest rate gaps and so on. But now we see the dollar rising possibly to around 100 yen," Bank of Tokyo-Mitsubishi's Uchida added.
The Australian dollar touched 99.55, a level not seen since August 2008. The euro traded at 125.91 yen, not far from a 34-month high around 127.71 reached last month.
Against the dollar, the common currency stood at $1.3033 , having recovered around half of Friday's slide from $1.3135 to three-month low of $1.2955.
Still, the euro is seen under pressure as the austerity-hit euro zone's economy is expected to face an uphill battle to recover from its recession.
Concerns about Italy's political crisis could soon resurface and President Giorgio Napolitano is expected to begin formal consultations with party leaders on March 19 to assess whether a government can be formed.
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