 Dollar hits 15-year low vs yen
Reuters - 9/8/2010 1:44:03 PM
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The yen struck a fresh 15-year high against the dollar and edged closer to a nine-year peak against the euro on Wednesday on a flare-up in worries over euro zone banks, prompting market players to test the will of Japanese authorities to intervene.
Persistent yen buying from investors seeking a temporary refuge in the yen in the face of European bank woes and U.S. slowdown worries helped to push the greenback through a major option trigger below 83.50 yen.
Among big buyers of the yen was said to be a major Japanese investor, which could be repatriating funds from its investments abroad ahead of its half-year book-closing at the end of September.
"The euro looks precarious again. The dollar will be weak ahead of the mid-term election. That leaves the yen as the only currency to buy especially after (Bank of Japan Governor) Shirakawa made only vague comments about the yen," a U.S. bank trader said.
BOJ Governor Masaaki Shirakawa reiterated on Wednesday his reluctance to return to quantitative easing although he indicated the central bank was weighing its options on how to deal with the economic impact of the yen's strength.
Finance Minister Yoshihiko Noda repeated his warning that he will take decisive action if necessary.
"Officials are making some comments and perhaps they may be preparing for intervention. But the market does not think they will do it now," says a trader at a Japanese bank.
The dollar fell as far as 83.34 yen, down 0.5 percent on the day and the cheapest since 1995. Many traders are now eyeing another option barrier at 83.00 as the next target.
The euro fell 0.5 percent to 105.80 yen at one point, threatening to revisit August's nine-year low just below 105.50.
"The euro's weakness is worrying. If the euro becomes unstable, there could be more selling in euro/yen, which would drag dollar/yen lower too," said a trader at a Japanese trading house.
Yen strength has stirred up speculation whether Japan would intervene to dampen it.
Michael Hasenstab, Franklin Templeton's co-director of international bonds, said more quantitative easing steps by Japan were possible and could weaken the yen, and this prompted Templeton to hold on to short yen positions versus the dollar and other Asian currencies.
"The only source of strength in the Japanese economy is exports. And with the yen sub 90 (per dollar), they will be under extreme pressure," Hasenstab told the Reuters' Dealing Room online chatroom.
Japanese capital data showed China continued to buy the yen in July, snatching up a net 640.8 billion yen ($7.65 billion) in Japanese bills, bringing its total net buying year-to-date to 2.3 trillion yen.
Reserve diversification by China and some other countries has been a reason behind the yen's rally in the past few months.
The euro was pinned at $1.2710, having dived from $1.2870 on Tuesday and a three-week high of $1.2920 the day before. Traders are now looking for a test of support around $1.2625, though they are not exactly keen to go long on the U.S. currency either.
"It's the same old ugly contest -- which currency is the least unattractive," said a dealer at a local bank in Sydney.
The euro eased slightly on the day to 1.2820 francs, just above the previous day's record low of 1.2812 francs, and traders saw little chart support until 1.2700.
The euro held near a record low on the Australian dollar set on Tuesday below A$1.3900.
Irish bond spreads hit fresh peaks on Tuesday on concerns about the health of the European banking sector putting more pressure on Ireland. Ireland is trying to hammer out a deal with the European Commission over the future of nationalized lender Anglo Irish Bank ANGIB.UL and it extended its guarantees for short-term bank liabilities on Tuesday.
The market is still trying to ascertain how risk-averse it should be after a report reignited concerns about European sovereign debt and banks' exposure on Tuesday.
Further risk reduction trade cannot be ruled out as hedge funds are said to have been largely absent over the summer period and have not yet come back in force, and need some direction to make money in the last part of the year.
"These guys have to make money and they have no positions at the moment. So when they come back to the market ... they're all going to pile in," said Robert Ryan, FX strategist at BNP Paribas in Singapore.
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