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FOREX-Dollar on track for best year vs yen since 1979

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* Dollar/yen on track for biggest yearly pct gain in 34
years

* Greenback gains nearly 21 pct vs yen in 2013

* Yen slides broadly in 2013 on BOJ’s massive stimulus

By Masayuki Kitano

SINGAPORE, Dec 31 (Reuters) – The dollar hovered within
sight of a five-year high versus the yen on Tuesday and was on
track for its biggest yearly percentage gain versus the Japanese
currency in 34 years, having risen nearly 21 percent in 2013.

The dollar last fetched about 104.93 yen, down 0.2
percent on the day and inching away from Monday’s five-year high
of 105.41 yen, the greenback’s strongest level versus the yen
since October 2008.

For the year, the dollar has risen 20.9 percent against the
yen, putting it on track for its biggest one-year percentage
gain versus the Japanese currency since 1979, when the dollar
climbed 23.7 percent against the yen, according to Thomson
Reuters data.

A divergence in the outlook for monetary policies in the
United States and Japan has been a key to the dollar’s stellar
performance versus the yen this year, and that disparity could
lead to further gains for the dollar, and losses for the yen, in
2014.

The yen has also retreated on the back of improving
sentiment on the global economy and rising investor risk
appetite.

A brighter outlook for the global economy can lead to an
increase in overseas investment by Japanese investors and weigh
on the yen, which has suffered broad losses this year and fallen
to multi-year troughs versus a number of currencies.

“I think we could see the dollar push higher versus the yen
on the back of dollar strength,” said Satoshi Okagawa, senior
global markets analyst for Sumitomo Mitsui Banking Corporation
in Singapore, referring to the outlook for 2014.

Okagawa said he sees the dollar rising to 110 yen in the
first half of next year.

The dollar could then dip to 95 yen in mid-2014, he said,
adding that a Japanese sales tax hike in April could dent
Japan’s economy and Tokyo shares and trigger a rise in the yen,
before re-testing the 110 yen threshold again in late 2014.

Crucial to the outlook will be whether the U.S. Federal
Reserve can keep reducing its bond-buying stimulus over the
course of 2014, he added.

Earlier in December, the U.S. Federal Reserve took its first
step towards winding down its massive monetary stimulus,
announcing that it would start reducing its monthly bond
purchases in January.

By contrast, market participants expect the Bank of Japan to
maintain, or even enhance, its ultra-easy monetary policy in
2014 to beat deflation.

In another sign of the yen’s weakness this year, the euro
has jumped a record 26.6 percent against the Japanese currency
in 2013, the euro’s biggest yearly rise versus the yen since the
single currency was launched in 1999.

The euro last stood at 144.90 yen, down 0.1
percent from late U.S. trade, but still within the vicinity of a
five-year high of 145.67 yen set last Friday.

The Swiss franc hovered near a 30-year peak against the
Japanese currency and last fetched 118.27 yen. The
Swiss franc had touched a high of 119.17 yen last Friday, its
highest level against the yen since January 1983.

EURO’S STRENGTH

The euro was steady versus the dollar at about $1.3808
, not too far from a two-year high of $1.3894 set last
Friday.

The euro has risen 4.7 percent against the dollar this year,
putting it on track for its best yearly gain versus the
greenback since 2007.

The euro’s strength this year has baffled many commentators
and investors, who had expected tough economic conditions in
some member states to weigh on the single currency.

But the euro has been boosted as banks in the region
repatriate funds ahead of the year-end to shore up their capital
bases before an ECB Asset Quality Review and as banks repay
cheap crisis loans to the ECB, which results in tighter
liquidity.

In addition, ECB President Mario Draghi said in an interview
with German news magazine Spiegel published on Saturday that he
sees no urgent need to cut the euro zone’s main interest rate
further and sees no signs of deflation.

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