TOKYO: The dollar slumped to a 10-week low against the yen in Asia Thursday as dealers ran for cover in the face of tumbling stock markets and concern the US central bank will soon end its massive stimulus programme.
The greenback bought 93.98 yen in Tokyo afternoon trade, down from 95.88 yen in New York late Wednesday and from the high 98-yen range in Tokyo at the start of the week.
"It's broad risk aversion that's strengthening the yen and weighing on share prices," said Kengo Suzuki, foreign-exchange strategist at Mizuho Securities in Tokyo. "Volatility could persist unless the Fed calms markets by clarifying its stance" at its June 18-19 policy meeting.
Thursday's drop put the dollar-yen rate at levels last seen when the Bank of Japan (BoJ) announced in early April a raft of aggressive monetary-easing measures to boost the economy, sending the Japanese unit into a tailspin.
The yen's bounce -- it has risen around 10 percent against the dollar in three weeks -- sent Tokyo's benchmark Nikkei 225 diving 6.35 percent Thursday, after US stocks fell sharply in volatile trade the previous day.
Yen trading and the Japanese stock market are closely interlinked as the unit's value directly impacts the profitability of the nation's exporters.
Foreign investors had piled into the Tokyo stock market since late last year as the new government pledged to stoke the economy with big spending and an aggressive monetary policy, which pushed down the yen.
But jitters over the Fed ending its $85-billion-a-month bond-buying plan had investors flocking to Japans' save-haven currency, traditionally a port in the storm during times of turmoil and uncertainty.
"The Nikkei falls because the dollar/yen falls, then the dollar/yen falls further because the Nikkei has fallen -- markets are in this vicious circle," said Atsushi Hirano, head of FX sales Japan at Royal Bank of Scotland.
A senior trader at a major Japanese bank said further losses in the Nikkei would be a negative signal from investors on the economic policies of Japanese Prime Minister Shinzo Abe's administration.
"An eventual breach of 12,000 for the Nikkei could see both forex rates and share prices back to levels seen before the BoJ's decision" in early April, he told Dow Jones Newswires. "If that happens, we'll just be left with higher bond yields."
Investors are growing increasingly concerned about volatility and rising yields in the Japanese bond market, which would lead to higher rates for long-term loans, squeezing mortgage payers and crimping spending.
The euro, meanwhile, won a measure of support from a better-than-expected 0.4 percent gain in eurozone industrial production in April from the previous month.
The single currency bought $1.3378 in Tokyo, against $1.3335 in New York while it fell to 125.93 yen from 127.86 yen.
The dollar was mostly higher against other Asia-Pacific currencies Thursday.
It firmed to Sg$1.2577 from Sg$1.2567 the previous day, to 58.51 Indian rupees from 58.21 rupees, and to Tw$29.95 from Tw$29.88.
The greenback also gained to 9,937 Indonesian rupiah from 9,933 rupiah, to 43.15 Philippine pesos from 43.10 pesos and to 1,135.57 South Korean won from 1,133.66 won while it weakened to 30.94 Thai baht from 31.13 baht.
The Australian dollar edged up to 94.50 US cents from 94.34 US cents while the Chinese yuan slipped to 15.36 from 15.76 yen.
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