NEW YORK: The yen tumbled to its lowest level against the US dollar in three months on Monday after Japan intervened to curb the currency's appreciation but more official action may be needed for the impact to hold.
Japan's latest round of intervention, the latest in less than three months and its third this year, followed repeated warnings about the yen's strength and came just days before the Group of 20 leaders' summit in Cannes, France. Tokyo wants a weaker yen to help the export-driven economy Japanese recover from last spring's earthquake. For more, click on.
The intervention came after the dollar hit a record low of 75.311 yen, with the greenback on track for its best monthly gain since March.
Traders were inclined to test Tokyo's resolve, pushing the dollar below 78 yen even though there had been talk of possible official bids near that level. This brought it well below an earlier high of 79.553 yen on the EBS trading platform.
The dollar's peak was its highest since August 4, when Japan last intervened to weaken the Japanese currency. The greenback though was still shy of its 200-day moving average near 80 yen. By early afternoon, the dollar was up 2.8 percent at 77.94.
"One has to question how seriously the market will take Japanese intervention," said Todd Elmer, G10 strategist at CitiFX, a division of Citigroup in New York. "The most recent rounds of intervention of brought isolated bouts of USDJPY buying and its not clear that policymakers are now ready to engage in more protracted action."
"Indeed, the timing looks tough for repeated intervention since this round comes directly ahead of the G20 meeting," he said.
Finance Minister Jun Azumi said Tokyo stepped into the market on its own and would keep intervening until it was satisfied with the results.
The scale of the intervention demonstrated the authorities' resolve, but more was expected given substantial long yen positions in the market. Data showed speculators doubled their net long position in the yen to 54,279 contracts in the week to Oct. 25, the highest since the beginning of August.
The options market showed bets on the yen's gains against the dollar on a one-month horizon had not eased significantly, reflecting the market's belief that the impact of intervention would not last more than around two to three weeks.
ITALIAN, SPANISH BONDS
The dollar rose broadly on renewed risk aversion as global stocks fell and peripheral euro zone bond markets came under pressure once again.
Price action in dollar/yen overshadowed movements in euro/dollar, which fell 1.4 percent on the day to $1.3946 on renewed debt crisis fears. The euro was off a two-month high of $1.42480 hit late last week, but was on pace for its best monthly gain since April.
Italian and Spanish bond yields surged on Monday, prompting the European Central Bank to buy the debt. Any relief from last week's European plan to contain the euro zone's fiscal problems faded, with many details of the package still unclear.
Analysts said it could remain weak ahead of a European
Central Bank policy meeting on Thursday, where an interest rate cut for December may be flagged.
However, the dollar could also come under renewed pressure if US policymakers announce plans to explore further easing measures to support growth after a Federal Reserve two-day policy meeting starting on Tuesday. The dollar index rose 1.4 percent to 76.084.
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