* Yen rallies broadly, hits 8-month high versus dollar
* Japan finmin says yen gain not "abnormal" then backtracks
* Euro shows little reaction to German election
(Updates into European midsession, changes byline)
By Emelia Sithole-Matarise
LONDON, Sept 28 (Reuters) - The yen retreated from an
eight-month high hit against the dollar on Monday after Japan's
finance minister appeared to tone down comments suggesting he
was comfortable with the currency's appreciation.
The dollar rose against higher-yielding currencies,
including the euro, as weaker global shares reflected chilled
risk demand. The single European currency brushed off a widely
expected election victory by German Chancellor Angela Merkel.
The yen jumped to 88.23 yen against the dollar, its
strongest since late January, rising for a third consecutive
session after reported comments by Japanese Finance Minister
Hirohisa Fujii that recent dollar/yen moves were not abnormal.
Later on Monday, Fujii said he had never said he approved of
a strong yen nor that he would leave a yen rise "as it is".
[]
Japanese Prime Minister Yukio Hatoyama also weighed in,
saying the recent rise in the yen had been been tough for small
firms. []
"It seems like he (Fujii) saw the moves his comments created
and sort of backtracked to avoid further yen strength," said
Christian Lawrence, a currency strategist at RBC Capital Markets
in London.
"For the day ahead it looks like we are seeing the dollar
trade on the back of its safe-haven credentials and FX moves
seem to be tracking equities."
By 1105 GMT, the dollar <JPY=> traded at 89.34 yen, clawing
back some losses. Many options around 90 yen were seen expiring
later in the day, and some market participants said the dollar
may push near that level as cut-off time approaches.
IFR reported that a hefty $5 billion in options at 90 yen
would tick over on Monday, and some in the market said any rise
towards that level would result in selling. Around $200 million
in options at 89 yen will also expire later in the session.
The yen has rallied broadly, pushing the dollar down about 4
percent so far this month on the view Japan's new government may
be more tolerant than its predecessor of a stronger yen.
Overall, analysts said more yen gains were likely and that a
rally to the year's high of 87.10 yen was possible.
FOCUS ON EQUITIES
The euro <EUR=> slipped 0.4 percent to $1.4630, as a 0.2
percent fall in European shares <>, hurt by lower metal
prices, helped pull the pair further from a one-year high around
$1.4842 hit last week.
Weaker stocks hit the Australian and New Zealand dollars,
which fell 0.4 and 0.9 percent respectively against the
greenback.
Yen gains against the dollar pushed the Japanese currency
broadly higher, pushing the euro <EURJPY=R> to around 129.85
yen, its weakest since mid-July. Sterling <GBPJPY=R> plunged as
low as a five-month trough of 139.80 yen.
Some analysts said a sustained reversal in equity gains was
imminent due to uncertainties about the global economic recovery
and that this might push the yen higher.
"The seal has been broken, dollar/yen is going down ... and
yen crosses are toast," said Maurice Pomery, managing director
of Strategic Alpha in London.
"There's a danger that equities are beginning to turn and
the data is going with it so there's a worry for holders of some
of the commodity currencies."
The pound stayed on the ropes, sliding sharply to as low as
$1.5770 <GBP=D4>, its weakest since late May and breaking below
support for sterling around $1.5800.
In Sunday's German election, Chancellor Angela Merkel's
conservatives won a parliamentary majority with the pro-business
Freed Democrats, her partner of choice, enabling her to end her
awkward partnership with the Social Democrats. []
Analysts said the vote outcome was widely expected by the
market, and would be neutral to marginally positive for the
euro, particularly if a new centre-right coalition carried out
necessary reforms over the next four years.
(Additional reporting by Naomi Tajitsu, editing by Nigel
Stephenson)
