July 13, 2016 / 8:47 AM / a year ago

FOREX-Yen rebounds modestly after biggest two-day fall since 2014

3 Min Read

* Dollar/yen steps back after fall of over 4 pct in 2 days

* Risk appetite fades a little

* Bank of Canada in focus later in day

By Jemima Kelly

LONDON, July 13 (Reuters) - The yen clawed back some ground on Wednesday after recording its biggest two-day falls in almost two years, as the strong risk appetite that had taken hold across markets at the start of the week faded a little.

The safe-haven yen had tumbled 4 percent against the dollar since the start of the week, its worst performance since November 2014, after Japan's Prime Minister Shinzo Abe's ruling coalition won a clear victory in upper house elections, fuelling expectations of more stimulus.

Monday's news that Britain would by Wednesday have a new prime minister -- current interior minister Theresa May -- and a bumper U.S. jobs report at the end of last week had also boosted risk sentiment, which had served to further dent the yen.

Some investors had hoped that former U.S. Federal Reserve chair Ben Bernanke's meetings with Japanese leaders this week would herald the adoption of "helicopter money", a term which Bernanke has in the past mentioned as a way central banks might finance government budgets to fight deflation.

But the dollar hit a session low of 103.95 yen shortly after Chief Cabinet Secretary Yoshihide Suga told a news conference that it was not true that the government was considering the policy.

"If we had had clear comments concerning helicopter money last night then maybe dollar/yen...would have continued to go higher," said UBS's director of currency strategy Constantin Bolz, from Zurich.

"But markets were super risk-on in the last two days and today seem to be giving back a little bit of that, so it makes sense that dollar/yen gives back a little bit of the gains."

Currencies seen as riskier plays that had rallied sharply on Tuesday such as the Australian dollar and the New Zealand dollar, which had hit a 14-month high, fell back.

The dollar was 0.5 percent down by 0800 GMT at 104.175 yen, while the euro fell 0.7 percent to 115.06 yen, but was still up about 3.5 percent so far this week.

While the yen may ease further in the near term, a sustained drop against the dollar seems unlikely, said Daisuke Karakama, chief market economist at Mizuho Bank in Tokyo.

"I think these moves are nothing more than position squaring and will prove temporary," Karakama said.

Later in the day, a Bank of Canada meeting on monetary policy is in focus. Though analysts are not expecting an interest rate cut, they think a dovish tone could be struck in the wake of the vote for Brexit, which could weigh on the Canadian dollar, which was down 0.3 percent.

For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Additional repoting by Lisa Twaronite and Masayuki Kitano in Tokyo)

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