TOKYO: The dollar held steady against the yen in Asia Tuesday after the previous day's sell-off in response to news that Japan had slipped into recession, while speculation over European Central Bank (ECB) stimulus pressured the euro.
In Tokyo morning trade, the greenback fetched 116.54 yen, slightly off 116.63 in New York but well up from 115.65 yen in Tokyo earlier Monday.
The euro ticked up to 145.35 yen from 145.19 yen, while it bought $1.2469 against $1.2448 in US trade. The single currency was trading above $1.25 in Asia on Monday.
Data Monday showed Japan, the world's number three economy contracted for a second straight quarter in July-September -- putting it in technical recession -- hammered by a sales tax hike earlier in the year.
The news send the dollar soaring above 117 yen in the first minutes before reversing course and falling below 116 yen in Asia. However, the greenback clawed back most of its losses in New York.
Analysts say Prime Minister Shinzo Abe is almost certain to delay another sales tax rise next year and call a snap election for December as he tries to bolster support within his own party ahead of a planned leadership poll next year.
The surprisingly weak reading also increased the chances that the Bank of Japan will further ease monetary policy, after last month ramping up its already huge bond-buying programme.
The October announcement came soon after the US Federal Reserve brought an end to its own easing programme and prepares for an expected interest-rate hike in mid-2015.
"Japan's drop back into recession will strengthen the disinflationary pressures in the economy and reinforces the divergence in the prospects for monetary policy relative to those in the US," Capital Economics said in a note.
"As a result, we now expect the yen to fall to 140 against the dollar next year."
Euro trading focused on comments from ECB chief Mario Draghi Monday that the bank was ready to step up its stimulus as the eurozone economy struggles.
Investors will be keeping an eye out for Germany's ZEW investment sentiment index later in the day, after it fell to its lowest level in nearly two years in October, stirring concerns about Europe's top economy.
"The German ZEW index is likely to rebound slightly in November, not so much because of stronger economic performance but because recent figures haven't been bad enough to sustain the decline in the ZEW," Credit Agricole said.
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