Yen surges in London

The yen gained against the dollar and the euro on Friday, buoyed by expectations that repatriated funds could flow in to pay for repairs after a major earthquake rocked Japan. The yen recovered after an initial knee-jerk reaction to sell the currency drove it to a two-week low against the dollar, and analysts said it could stay choppy on near-term worries about the impact on a shaky Japanese economy.
Worries about growth saw investors cut exposure to risk, leading to selling of higher-yielding currencies. The euro was also seen vulnerable to a sell-off if a eurozone summit later in the day fails to ease concerns about sovereign debt. The dollar held just above 82.00 yen, with traders reporting large bids and stops at that level. Near-term support for the dollar also lay near its March 7 low of 81.95 yen.
The dollar was down 0.8 percent at 82.24 yen, pulling away from the two-week high of 83.29 yen hit in the Asian session. Solid offers from Japanese exporters above 83 yen were seen capping any upside for the US currency. "There may be some upward pressure on the yen. There is a worrying possibility that the yen could strengthen very fast against the dollar over the next few months," said Jerome Booth, fund manager at Ashmore Investment, which had assets under management of $46.7 billion at the end of 2010.
The euro also fell more than 1 percent to 112.94 yen, according to Reuters data, its lowest in more than a week. The Bank of Japan said it would cut short its two-day meeting next week to just one day and announce its decision that day, while leaders of the ruling and opposition parties pushed for an emergency budget.
With rates at nearly zero, the BoJ does not have the scope to cut borrowing costs as the Reserve Bank of New Zealand did earlier this week in response to last month's Christchurch earthquake. Analysts said Japan is likely to take steps which will further delay any gradual normalisation of monetary policy, and this could prove negative for the yen.
"For now the yen's usual safe-haven characteristics are offering it support, though the yen may be more volatile than usual," said Jane Foley, senior currency strategist at Rabobank. The yen, the US dollar and the Swiss franc are considered to be safe-haven currencies and are usually sought by investors in times of economic uncertainty and financial stress. The dollar index was steady at 77.250.