TOKYO: The dollar got off on the backfoot against the yen on Tuesday, as Treasury yields fell on increased demand for safe-haven assets amid plunging oil prices and weaker stock markets.
The dollar edged down about 0.1 percent against the yen to 118.26, moving back toward a one-week low of 118.10 yen touched overnight, as markets in Tokyo reopened after Monday's public holiday.
"Buying USD/JPY is once again one of the market's favourite global macro trades for 2015 with some optimistic analysts calling for a move to 145 but as the currency pair consolidates and heads for a break of 118, many traders are wondering if USD/JPY will fake everyone out again," said Kathy Lien, managing director at BK Asset Management in New York, in a note to clients.
With Treasury yields and stocks falling, she believes the dollar could see a deeper near-term pullback towards the 116.75 to 117.50 range, before eventually making a run back to its 121.85 December high. The yield on benchmark 10-year Treasury notes wallowed at 1.907 percent in Asian trading, down from its US close of 1.912 percent on Monday.
Tokyo markets digested weekend news that Japan's government will propose a record budget for next fiscal year of more than $800 billion but cut borrowing for a third year, as Prime Minister Shinzo Abe seeks to maintain growth while curbing the heaviest debt burden in the industrial world.
The dollar was steady on the day against the euro at $1.1830 , which hovered not far above a nine-year nadir of $1.1754 touched last Thursday, with the European Central Bank on the verge of printing money outright to shore up the eurozone economy.
The ECB should not wait too long to take action to spur growth and inflation, senior ECB policymaker Ewald Nowotny told a panel discussion on Monday, adding that steps including bond buying were still being discussed.
The ECB is considering a hybrid approach that could include buying government bonds with risk-sharing across the euro zone and separate purchases by national central banks, sources familiar with the discussions have said.
ECB President Mario Draghi may announce a government bond-buying programme as soon as the Governing Council's next policy meeting on Jan. 22.
Many investors and economists believe that some kind of unlimited money-printing is the only way the central bank can revive the moribund euro zone economy.
By contrast, a Reuters poll conducted on Friday showed most top Wall Street firms still projected the US central bank would begin to move away from its near-zero interest-rate policy in June, despite forecasts that US inflation would continue to fall short of the Fed's 2 percent target.
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