Yen up as Japan PM plays down idea of foreign bond fund

The possibility of setting up such a fund, tasked with measures including purchases of foreign bonds, had been included in a campaign platform drawn up by Abe's Liberal Democratic Party ahead of a national election last December.

"I think he was told at the G20 ... 'don't you dare, don't you dare do that'," said Rob Ryan, a strategist for RBS in Singapore, referring to the idea of setting up a fund to buy foreign bonds.

The Group of 20 nations declared at a meeting in Moscow on Saturday that there would be no global currency war. Japan's expansive policies, which have driven down the yen, escaped direct criticism.

By mid-afternoon, the dollar was down 0.3 percent to 93.32 yen, edging away from a 33-month high of 94.465 yen set on February 11 on trading platform EBS. The dollar fell to as low as 93.12 after Abe's remarks.

The greenback has risen roughly 7.5 percent versus the yen this year, with the Japanese currency pressured by expectations that Japan will take further stimulative steps to fight deflation.

Market players, however, said the yen's decline may slow in the near term.

"The pace of yen depreciation will slow," said Sim Moh Siong, FX strategist for Bank of Singapore.

"In light of the G20 statement to avoid competitive devaluation, it will be difficult to talk down the yen specifically. The onus now is on policy to do the work," he added.

Abe said on Wednesday that cabinet ministers need to be careful when explaining FX levels, while Japanese Chief Cabinet Secretary Yoshihide Suga refrained from commenting on currency levels.

"I think there will be some range trading for a while," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, adding that the dollar hold between 92.50 and 95.50 yen over the next couple of weeks.

Market players are waiting for more clarity on the government's choice for the next Bank of Japan governor to replace Masaaki Shirakawa.

A delay in nominating a new BOJ governor has fanned talk of friction between Japan's prime minister and finance minister over who should run a central bank charged with taking aggressive action to beat deflation.

Earlier on Wednesday, the yen showed little reaction to data showing that Japan's trade deficit widened to a record in January as energy imports rose more than expected.

EURO/DOLLAR RISES; KIWI SLIDES

The euro rose 0.3 percent to $1.3426, staying firm after data on Tuesday showed a strong improvement in German economic sentiment.

The ZEW index rose to its highest since April 2010, beating even the highest forecast in a Reuters poll.

The New Zealand dollar slid 0.8 percent to $0.8399 after Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler said the New Zealand dollar was significantly overvalued compared to its economic fundamentals.

Wheeler also said RBNZ was ready to intervene in FX markets when circumstances were right.

The kiwi had climbed to $0.8534 on Friday, its strongest level since September 2011.

(Additional reporting by Ian Chua in Sydney; Editing by Simon Cameron-Moore & Kim Coghill)

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