Dollar rises versus yen in London

The dollar rebounded from near record lows against the yen on Monday after the Bank of Japan announced a series of policy easing measures to shore up the economy in the wake of a devastating earthquake and tsunami. A surprise deal to boost Europe's sovereign bailout fund lifted the euro against the dollar but the focus was on the Japanese authorities' stimulative action and the risk that Japanese authorities could intervene if the yen strengthened too far against the dollar.
Traders said many investors had been caught long of yen on expectations of repatriation flows after the Japanese disaster. Yen trade was likely to stay volatile but BoJ easing measures put the focus back on yield differentials. "The BoJ is now committed to pumping the economy full of as much liquidity as it can. It is providing more monetary stimulus just as other central banks consider tightening, so interest rate differentials should favour a weaker yen," said Kathleen Brooks, research director at FOREX.com.
The dollar was up 0.2 percent at 82.06 yen, having tumbled to a four-month low of 80.60 yen on trading platform EBS overnight, less than one yen from a historic trough of 79.75 yen hit in 1995. "The yen might gain from capital repatriation flows after the quake, but the BOJ probably won't tolerate an excessive rise," said Roberto Mialich, currency strategist at Unicredit in Milan.
The yen reversed early gains after the BOJ doubled its asset buying scheme to 10 trillion yen and supplied record funds to banks on Monday to shore up confidence as Japan reeled in the wake of the massive quake and tsunami. On Monday, the country was also battling to prevent a nuclear catastrophe and to care for millions of people without power and water in what was described as Japan's worst crisis since World War Two.
One-month implied volatility in dollar/yen spiked to a roughly four-month high at around 11.7 percent, compared to around 8 percent before the earthquake, though traders said flows were muted. Elsewhere, the euro was firmer against the dollar as European policymakers surprised markets by making significant steps over the weekend to tackle a debt crisis in peripheral eurozone countries. The euro was up 0.5 percent at $1.3975 - well above a one-week low near 1.3750 hit on Friday - after European Union policymakers surpassed all expectations on Saturday by agreeing to strengthen the eurozone bailout fund and make its loans cheaper.