* Dollar/yen hits highest since August 2009 * BOJ pledges to pump $1.4 trillion into economy * Aussie dollar at 4-1/2 year highs against yen By Sophie Knight TOKYO, April 5 (Reuters) - The yen slumped to a 3-1/2 year low versus the dollar on Friday, after suffering its biggest fall since late 2008 on Thursday, when the Bank of Japan surprised markets with a radical campaign of monetary expansion to attack deflation. The dollar extended its gains against the yen and rose to as high as 97.06 yen on trading platform EBS, a level not seen since August 2009. The dollar last stood at 96.88 yen, up 0.6 percent on the day.
The greenback soared 3.6 percent against the yen on Thursday after the BOJ unleashed the intense monetary stimulus, promising to inject about $1.4 trillion into the economy in less than two years, a gamble that sent bond yields to record lows as prices rose on the prospect of massive BOJ bond-buying. Governor Haruhiko Kuroda, chairing his first policy meeting, committed the BOJ to open-ended asset buying and said the monetary base would nearly double to 270 trillion yen ($2.9 trillion) by the end of 2014. "The BOJ announcement was more aggressive than almost anybody had expected," said Jens Nordvig, global head of FX strategy at Nomura Securities in New York. The euro also continued its rally against yen, hitting a three-week high of 125.50 yen. The euro was last up 0.5 percent at 125.295 yen, after jumping 4.3 percent on Thursday, its biggest one-day rise against the yen since November (Xetra: A0Z24E - news) 2008. Nomura Securities said that weaker U.S. growth momentum lately meant the dollar may not be the best currency to express yen weakness. Instead, the firm said it is buying the Australian dollar against the yen, targeting a move to 105 in two to three months. The Aussie dollar rose to 101.04 yen, its highest level since August 2008. "The BOJ made a strong commitment to the 2 percent inflation target and so I think foreign investors' expectations rose, which helped the yen weaken," said Junya Tanase, executive director of FX research at JPMorgan in Tokyo. The anticipation of long-dated Japanese government bond purchases has already caused the Japanese yield curve to collapse. The BOJ's new plan means it will buy about 7 trillion yen ($73 billion) of bonds per month, equivalent to about 1.4 percent of gross domestic product. By comparison, the U.S. Federal Reserve is buying $85 billion of bonds per month, about 0.6 percent the size of the economy. "However, I don't think that the achievement of that inflation target has actually been priced in," Tanase added. Analysts say that the dollar has space to run higher against the yen now that it has regained a foothold above the 96 yen level. Barclays (LSE: BARC.L - news) foresees the dollar firming to 103 yen in the coming weeks, while Societe Generale (Paris: FR0000130809 - news) sees that level as a long-term target that should be reached by the first quarter of 2014. The yen could firm in the near term if the U.S. nonfarm payrolls report, due out later on Friday, disappoints. That could keep U.S. bond yields depressed and add to expectations of more bond-buying from the Federal Reserve, which would weigh on the dollar against the yen. Data showing weaker-than-expected growth in U.S. private-sector employment and initial jobless claims at four-month highs last week has fueled worries the labor market is losing momentum. The euro was flat against the dollar at $1.2933. The euro has rebounded versus the dollar after hitting a 4-1/2 month low around $1.2745 on Thursday, as investors pared back their bearish bets against the single currency. European Central Bank President Mario Draghi said on Thursday the bank stood ready to act if growth continues to languish. He also affirmed his commitment to keeping the euro zone intact and said the Cyprus bailout was not a "template" for future rescues in the currency zone.