While Prime Minister Shinzo Abe piled pressure on the Bank ofJapan to weaken the yen last week, the Federal Reserve struck thefirst blow against the currency.

A signal from Fed board members that they may end bond purchasesin 2013 helped drive the yen to a 2½-year low of 88.41per dollar on Jan. 4, still 15 percent stronger than its decadeaverage. The extra yield on 10-year Treasuries instead ofsimilar-maturity Japanese government bonds reached 1.13 percentagepoints last week, the most in nine months, attracting funds intodollar assets.

“With a possible pickup in the U.S. economy, the dollar is morelikely to rise than the yen,” said Jun Kawakami, a market economistat Mizuho Securities Co., one of the 24 primary dealers obliged tobid at Japan's debt sales. “While there's a good chance that theFed will reduce bond purchases as early as this year, there isabsolutely no exit strategy in sight for the BOJ, creating acontrast between their policies.”

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