FOREX-Dollar surges versus Japanese yen as markets rally

* Dollar surges, adds more than 2% vs yen
* ECB did not follow Fed, BoE in cutting rates
* European markets rebound after Thursday's meltdown
* Policymakers struggle with coronavirus response
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Iain Withers
LONDON, March 13 (Reuters) - The dollar rallied on Friday,
gaining sharply versus the yen, as stock markets rebounded and
investors welcomed signs that governments and policymakers were
prepared to do more to tackle the economic shock of the
coronavirus.
The greenback extended gains against several currencies
after a blowout in swap spreads on Thursday signalled that
investors want dollars. While those spreads came in on Friday,
the dollar held strong.
Among the big gains was against the Japanese yen, up more
than 2% to a weekly high at 107.17 yen on Friday JPY=EBS .
The euro nursed losses despite European Central Bank
policymakers trying to reassure markets following a big selloff
in European assets on Thursday after investors were underwhelmed
by the bank's stimulus measures.
Norway's central bank became the latest to cut rates on
Friday in an attempt to limit the economic damage, sending the
crown up around 2% against the U.S. dollar and the euro as
investors welcomed the move to support the oil-dependent economy
NOK=D3 EURNOK=D3 . Analysts at HSBC said the crown could rebound further if the
Norwegian government repatriates some of its vast overseas
assets.
"Norway still has some monetary policy flexibility. But more
importantly it has acres of fiscal room," they said.
The ECB on Thursday announced a stimulus package that
provides loans to banks with rates as low as -0.75% and
increases bond purchases, but it did not join its counterparts
in the United States and Britain by cutting rates. ECB President Christine Lagarde aggravated a market selloff
by saying it was not the central bank's job to close the spread
between the borrowing costs of various members, comments which
she later tried to roll back. Opinion was divided on the ECB's package, with analysts at
Commerzbank arguing that its decision "not to fire all pointless
Bazooka barrels" with a rate cut was a sensible choice and
predicted the euro was likely to recover.
"In times of crisis the ECB does not take extreme,
EUR-negative measures. Let us give the market a little more time
to get used to that," they said.
"Once it has done that it is likely to value the euro more
highly, reflecting the fact that a safe haven currency is
attractive to investors."
The euro EUR=EBS traded down 0.3% at $1.1158, following a
0.7% decline on Thursday in the wake of the ECB decision. For
the week, the common currency is on course for a 1% decline.
The pound GBP=D3 , dropped 0.5% to $1.2798.
The greenback's rebound this week reflects its role as the
world's most liquid currency that investors seek in times of
stress.
The Fed meets next week and many analysts now expect the
central bank to chop its own target policy rate, quite possibly
to zero, and give markets new guidance about how it plans to
combat the economic fallout from the coronavirus.
Cross-currency basis swap spreads for the yen JPYCBS3M=
and the pound GBPCBS3M=ICAP fell on Friday after Thursday's
blow out.
The Australian AUD=D3 and New Zealand dollars NZD=D3
bounced more than 1%. They were mauled on Thursday as investors
shunned riskier currencies that are linked to the global
commodities trade. The Swiss franc fell as investors dumped safe haven
currencies CHF=EBS EURCHF=EBS .