* Yen recovers after hitting lows vs euro, commodity
* Yen still seen as the funding currency for carry trades
* Dollar steady after rally, NY Fed Dudley's speech eyed
By Anirban Nag
LONDON, March 19 (Reuters) - The yen climbed off a
five-month low against the euro on Monday, and picked up versus
growth-linked currencies, earning a brief respite from investors
seeking to fund purchases in riskier assets by borrowing in the
The yen's status as the currency of choice for carry trades,
where investors borrow a low-yielding currency to buy
higher-yielding assets, is likely to continue after the Bank of
Japan's surprise easing last month.
Additionally, a recent surge in U.S. Treasury yields has
made the dollar less appealing as a funding currency compared to
After hitting fresh lows against the euro and
hovering near 11-month troughs against the dollar, the
Japanese currency has bounced, but is likely to stay under
pressure with most investors looking at any rebound to initiate
fresh bearish positions in the yen, analysts said.
The euro rose as high as 110.15 yen at one point on trading
platform EBS, its highest level since late October. It later
pared those gains and was last changing hands at 109.30 yen
, down 0.6 percent on the day.
The higher-yielding Australian dollar rose to 88.63 yen
, its highest level since May 2011. The growth-linked
Australian dollar last stood at 87.95 yen, down 0.4 percent on
"There has been a significant rise in short yen positions so
we are seeing a bit of a pullback ahead of a holiday in Japan,"
said Jeremy Stretch, head of currency strategy at CIBC World
Markets. Japanese markets will be shut for a holiday on Tuesday.
"These are opportunities to initiate fresh bearish positions
and we expect dollar/yen to rise towards 85-85.50 yen while the
euro having hit a high above 110 yen, is likely to consolidate."
Net shorts in the yen have risen significantly over the past
three weeks. With Greek-related risks in the euro zone taking a
breather, the euro was supported against the yen, while the
Federal Reserve's not so dovish outlook was giving U.S dollar
bulls a boost.
That view could be challenged at a speech by New York Fed
President William Dudley later in the day. Dudley is an arch
dove and could reiterate the Fed's position that unless the U.S.
jobless rate drops further, the chance of further stimulus could
not be ruled out.
But given a sharp drop in recent days, the Japanese currency
may be due for some respite, traders said. Also, March is
typically a month that attracts Japanese corporate demand for
yen ahead of Japan's business year-end at the end of the month.
The dollar was little changed against a basket of currencies
at 79.856 while the euro was slightly lower
against the greenback, trading at $1.3150.
Despite some easing in euro zone tension, speculators are
still running bearish positions in the euro, although they have
trimmed some of those bets.
The dollar last stood at 83.12 yen, down 0.3 percent on the
day and retreating from an 11-month high of 84.187 yen hit on
Ray Farris, chief strategist for Asia fixed income for
Credit Suisse in Singapore said whether the dollar rises further
against the yen in coming months will depend on the Bank of
Japan's monetary policy to a large extent.
"If the BOJ continues to, month after month, push with new
monetary easing measures and does enough to convince the
domestic market in Japan that it is serious and credible in
trying to raise the inflation rate to about 1 percent, then
dollar/yen can probably continue to rise," Farris said.
"But it's still unclear just how aggressive the BOJ is
willing to be," he said.