Dollar retreats vs yen but 100 mark still in sight

The dollar inched lower against the yen on Friday as investors took profit on its recent surge, but the Bank of Japan's radical policy drive to beat deflation looked set to keep the 100 yen level firmly within its sights.

The greenback has gained more than 7 percent from about 92.90 yen since the BOJ pledged last week to inject about $1.4 trillion into the Japanese economy in less than two years to achieve its target of 2 percent inflation.
The dollar was on track for its largest two-week gain versus the yen since early 2009 after it hit a 4-year high of 99.95 yen on Thursday on trading platform EBS.
But the pullback saw it down 0.4 percent on the day on Friday at 99.32 yen, with traders citing options-related offers also halting further progress.
"We are seeing some profit-taking this morning. Also dollar/yen has gone too high, too fast so we are seeing some pullback," said Morten Helt, senior FX analyst at Danske Bank.
"Nevertheless we see dollar/yen trade higher and eventually hitting that magic 100 mark."
The BOJ's easing steps have prompted many analysts to revise up their forecasts for dollar/yen. Societe Generale analysts now target an eventual rise to 110, up from 103 previously.
The yen showed little reaction to comments from BOJ Governor Haruhiko Kuroda on Friday where he said the BOJ has taken all necessary steps to meet its 2 percent inflation target in two years and will try to minimize the market disruption from its massive bond buying.
The euro slipped 0.7 percent to 129.65 yen, having pulled back from a three-year high of 131.10 yen set on Thursday.
EU WORRIES
Against the dollar, the euro was down 0.3 percent at $1.3060. Reported option expiries around $1.3000 could likely keep the currency pinned around that level.
Strategists said markets will focus on a meeting of European Union finance ministers starting later on Friday, expected to approve a 10 billion euro bailout package for Cyprus.
Ministers will also likely discuss revisions to the terms and conditions of bailouts for Portugal and Ireland.
"Some pullback (in euro/dollar) is expected today as the focus returns to the issues at the periphery of Europe," analysts at Morgan Stanley said in a note.
"However, the underlying expectations for portfolio flows into EMU are expected to keep the euro/dollar pullback limited to the $1.3040 area, from where we would anticipate a resumption of the uptrend towards $1.33/1.34."
The BOJ's sweeping monetary stimulus has put the focus on whether Japanese investors will increase their overseas investment.
"Markets are a little shaky that there is no evidence yet of Japanese domestic investors putting their money into foreign asset purchases," said Kiran Kowshik, currency strategist at BNP Paribas.
"Our take is that Japanese investors are not yet positioned for this and that there is lot of potential for them to start selling the yen."
Some analysts, however, remain skeptical that Japanese institutional investors would drastically increase their overall exposure to foreign exchange risk at this point, even if a few currencies such as the Australian dollar hold some attraction.
Japanese capital flows data released on Thursday showed no signs of any increase in Japanese capital outflows in the wake of the BOJ's easing, or even since the start of the year.
The data showed that Japanese investors sold a net 1.145 trillion yen ($11.5 billion) worth of foreign bonds last week, the biggest selling in a year, as they cashed in gains at the start of Japan's financial year.