The dollar was seen extending its gains after it hit a 3-1/2 month high against the yen on Wednesday, as the Bank of Japan's easing steps the day before helped trigger more stop-loss buying of the greenback. On top of the BoJ's expansion of its asset-buying scheme, Japan's shrinking current account surplus, its trade deficit and signs of economic recovery in the United States all weighed on the yen, triggering big gains in the shares of Japanese exporters on Wednesday.
Dollar/yen stop-loss buying by short-term accounts as well as substantial purchases by Japanese importers, combined with an improving technical outlook, also suggested the dollar may extend its gains in the near term. The dollar was up 0.1 percent at 78.50 yen after hitting a session high of 78.67. It was well on track to extend gains made on Tuesday, which saw the biggest one-day percentage surge since October 31, when Tokyo intervened to weaken the yen.
"There's very little upside pressure on the yen right now. Of course the euro zone can always suddenly change the landscape, but the bottom line for now is that the yen is going down," said Koji Fukaya, chief currency analyst at Credit Suisse in Tokyo. In another bullish sign, the dollar held well above strong support at its 200-day moving average, currently 78.04 yen, having closed above it for the first time since mid-April.
Other Tokyo traders agreed with Fukaya, saying the nature of flows and the atmosphere across dealing rooms has changed since the BOJ eased on Tuesday. "We're seeing some very substantial buy orders for dollar/yen coming in since yesterday - this rally is set to continue for quite a while yet," said a trader who handles orders from some of Japan's major companies for a Japanese bank in Tokyo.
The trader said an obvious resistance level was now being eyed at the post-intervention high of 79.55 yen. The euro was also bid against the yen, fetching 103.42 yen, breaking heavy resistance it has met over the past few sessions in the 103.20-30 area. Against the dollar, the euro gained 0.3 percent to $1.3173, still well off February's high of $1.3322.
It was supported as mild short-covering kicked in after China's central bank governor said the country would continue to invest in euro zone debt and that it remained confident on the single currency. The Australian dollar gained 0.6 percent to $1.0747 on short-covering prompted by gains across Asian bourses.