TOKYO: The yen gained across the board on Friday as Japanese exporters sold both the euro and the dollar at the end of the fiscal half-year, with the common currency softening against the greenback as markets ponder the next hurdles for Europe to fix its debt crisis after a crucial German vote.
The dollar shed 0.3 percent to 76.58 yen , edging closer to the record low of 75.94 yen plumbed in August, but was still stuck in what players said was the tightest monthly range in living memory as both the yen and the dollar have received safe-haven inflows amid recent market turmoil.
The euro relinquished modest gains made after Germany approved an expansion of the euro zone bailout fund. Tokyo exporters and speculators pushed it below the late New York low of 103.90 yen, triggering light stop-loss moves.
Against the yen it was last down 0.8 percent at 103.66 yen and against the dollar it dipped 0.3 percent to $1.3557 , having climbed as far as $1.3679 at one stage after German Chancellor Angela Merkel's ruling coalition voted to enhance the powers of the European Financial Stability Facility.
"The euro weakened as strong selling by Japanese exporters emerged, but frankly looking at the recent volatility, a dip like that is still not hugely important," said Teppei Ino, a currency analyst at Bank of Tokyo-Mitsubishi UFJ.
"If anything it shows that Japan exporters don't see the euro coming back up any time soon. The question now is what is the EU's big, long-term solution to save it."
Financial markets are already anticipating a likely Greek default and demanding more far-reaching measures to prevent the crisis that began in Athens from spreading far beyond Europe and its banks.
The next big hurdle will likely come when the EU tries to expand the size of the rescue fund to 2 trillion euros ($2.73 trillion) to ring-fence a potentially "managed" Greek default.
"There is still a lot of uncertainty ... Economic growth in Europe and the US is not that good, and that will put pressure on the euro and give a bid to the dollar," said Joseph Capurso, a strategist at Commonwealth Bank of Australia.
He expected the single currency to fall close to $1.3400 in the next couple of days.
The euro is on track to post its worst month in nearly a year and its worst quarter since mid-2010 against the dollar, despite paring some losses this week. Only talk that euro zone authorities were finally acting to prevent the debt crisis from spreading lifted it off an eight-month trough of $1.3360 on Monday.
Resistance for the euro is seen at $1.3715, a 61.8 percent retracement of its decline to $1.3360 from $1.3937 in the second half of September.
Support looms at $1.3475-85, a 61.8 percent retracement of its advance to $1.3360 from $1.3690.
The market took in stride HSBC's China Purchasing Managers' Index showing the factory sector contracted slightly for a third consecutive month in September due to weaker global demand, while factory inflation quickened to a four-month high.
It also ignored comments by Japanese Finance Minister Jun Azumi, who said Japan will boost its currency intervention fund by 15 trillion yen ($195 billion) through a third extra budget for the fiscal year to next March.
With gains eked out against the euro offsetting losses sustained versus the yen, the dollar index held steady at 77.09, well-off an eight-month peak of 78.863 struck on Monday.
The New Zealand dollar fell 0.5 percent to 0.7651 and was at one point on the brink of a six-month low against the US dollar after Standard & Poor's followed Fitch Ratings in downgrading its sovereign debt by one notch.
Fitch said it is unlikely New Zealand will be able to sustainably reduce its current account deficit in the next few years.
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