SINGAPORE (Reuters) - The dollar rose against the yen on Thursday with traders attributing the move to position squaring by short-term players in the wake of the yen's bounce over the past couple of days.
The yen had bounced earlier this week after the Bank of Japan was deemed to have disappointed by not immediately upsizing its asset-purchasing program. This was despite the Bank of Japan delivering its boldest policy yet to snap the economy out of years of stagnation.
In the wake of that rebound in the yen, some short-term traders had been left holding short positions in the dollar, said a trader for a European bank in Tokyo.
"The market had gone short (the dollar) during that pullback," the trader said. "For today, it seems like there has been some short-covering," he said, adding that the dollar would probably trade in a range of 87 yen to 90 yen in the near term.
The dollar rose 0.8 percent to 89.33 yen, pulling away from a one-week low of 88.06 yen hit the previous day. The dollar had hit a 2-1/2 year high of 90.25 yen on Monday.
The dollar's pullback versus the yen after the BOJ's announcement on Tuesday has proved shallow so far and most are of the view that dollar/yen will continue to climb over time.
"We saw a little clear out of short term speculative positions, which is only healthy in an uptrend. I don't think there's any change to the trend because of it," said Jesper Bargmann, Asia head of G11 spot FX for RBS in Singapore.
"I think we will struggle to break 91, but I will still keep looking for us to trade above 90 in the short-term," Bargmann said, referring to the outlook for the dollar versus the yen over the next week or so.
Yen bears have not given up, partly because BOJ Governor Masaaki Shirakawa, whose term ends in April, is seen likely to be replaced with a more dovish governor, who could then bring forward any easing.
Earlier, the yen had slipped as Asian equities edged higher after an upbeat reading of Chinese manufacturing activity provided an encouraging sign for the global economy.
The HSBC flash purchasing managers' index, a preliminary private survey, showed that growth in China's factory sector accelerated to a two-year high in January.
Asian equities <.MIAPJ0000PUS> however, later sagged back down. The Australian dollar also only got a brief lift from HSBC's survey of the Chinese factory sector, and was last down 0.3 percent at $1.0525.
Earlier on Thursday, the yen showed limited reaction to data showing a larger-than-expected Japanese trade deficit in December, and a record trade deficit for the whole of last year.
For 2012, Japan logged a record annual trade deficit of 6.93 trillion yen ($78.27 billion).
Japan's trade deficits have been a contributing factor to the bearish market sentiment against the yen.
The euro rose 0.9 percent against the yen to 119.13 yen, edging back in the direction of a 20-month high of 120.73 yen set on Friday.
Against the dollar, the euro rose 0.2 percent to $1.3341.
(Additional reporting by Ian Chua in Sydney; Editing by Sanjeev Miglani)
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