LONDON: The yen's recent bounce ran out of steam on Tuesday as stocks and commodities stabilised, but investors remained wary that another rout in gold prices could spur demand for the safe haven Japanese currency.
The yen, which is very liquid and tends to benefit in times of stress in the global economy or financial markets, has been a big beneficiary in the past few days after poor Chinese data, a dramatic drop in gold prices and explosions in Boston combined to drive investors to seek safe havens for their money.
But its recovery stalled on Tuesday with analysts saying its medium-term trend toward more weakness remained in place after the Bank of Japan earlier this month unveiled an aggressive plan of monetary easing aimed at beating deflation.
The US dollar rose 1 percent to 97.90 yen, though it was still down about 2 percent from a four-year high of 99.95 yen hit last week following the Bank of Japan's $1.4 trillion stimulus launch announced on April 4.
The euro also jumped 1.5 percent to 128.03 yen.
"We had a clear rout of positions in the past few days," said Paul Robson, senior currency strategist at RBS. "But any pullback in dollar/yen is temporary and we are fairly confident that dollar will rise against the yen in the medium term given capital outflows from domestic Japanese investors."
Earlier on Tuesday, the US currency had fallen to 95.67 yen, its lowest since April 4.
News of explosions in Boston, which a White House official said are being treated as an "act of terror", prompted speculators to sell the euro, the dollar and growth-linked currencies.
Traders said investors would need to see a clearer sign that commodity prices are stabilising before their appetite for riskier assets returns. Gold fell 9 percent on Monday, its biggest percentage loss since 1983, spooking many traders.
Robert Rennie, head of currency strategy at Westpac said in a note Japanese investors of gold may have been big sellers after the precious metal hit a record high in yen-denominated terms last week.
He added that until Japanese domestic investors, like banks, insurance companies and pension funds step up purchases of foreign assets, they are likely to trim their gold holdings.
The latest drop in gold came after disappointing Chinese data, talk of large-scale selling by a big fund, and news that the Central bank of Cyprus might sell gold reserves, though traders are unsure exactly what has caused such a big slide.
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