Euro weakens in Asian trade on Cyprus, Italy worries

The dollar and euro weakened on the yen in Asia Monday amid concerns over debt-ravaged Cyprus and political uncertainty in Italy as a Bank of Japan survey showed a modest increase in business confidence.

Euro-sentiment was dampened after a rough week in which Cyprus managed to open its banks as the first step in what will be a gruelling economic and financial rehabilitation programme.

In morning Tokyo trade, the dollar weakened to 93.89 yen against 94.20 yen in Easter weekend trade on Friday in New York.

The euro bought $1.2777 and 119.98 yen, slipping from $1.2818 and 120.78 yen in US trading, as the Cyprus bailout and Italian political instability heaped caution on trading of the common currency.

The coming week sees monetary policy meetings by the Bank of Japan (BoJ), the European Central Bank (ECB) and Bank of England.

Markets will be watching to see if ECB chief Mario Draghi tries to calm markets when he holds his regular monthly news briefing Thursday, although bank watchers said the ECB was likely to hold off any new policy measures.

A BoJ poll released Monday showed confidence among large Japanese manufacturers improved in the first quarter, as Tokyo works to reverse years of limp growth in the world's third-largest economy.

The BoJ holds a policy meeting this week as its new governor, Haruhiko Kuroda, talks up his plans to stoke the economy and reverse years of falling prices which have crimped private spending and corporate investment.

His vow to beat years of deflation has stoked speculation that the BoJ will launch a new wave of aggressive policy measures that tend to weaken the yen, helping the country's exporters.

Forex markets would also focus on an Italian political stalemate, dealers said, after leftist leader Pier Luigi Bersani gave up trying to form a new government following nearly a week of fruitless talks.