The dollar rebounded from near-record lows against the yen on Monday, boosted by hedge fund buying as the Bank of Japan's huge infusion into money markets helped ease nervousness triggered by the massive earthquake and tsunami in north-east Japan. The plunge in the Nikkei share average also prompted a sell-off in currencies that thrive when there is increased risk appetite, such as the Australian and New Zealand dollars.
The yen had advanced sharply on Friday on talk of repatriation flows as the disaster unfolded and was seen likely to extend gains especially if Japanese insurers try to raise funds by selling overseas holdings.
On Monday, the country was battling to prevent a nuclear catastrophe and to care for millions of people without power and water. The greenback tumbled as low as 80.60 yen on electronic trading platform EBS, 1 yen away from a historic trough of 79.75 yen hit in 1995. But news of the BoJ's offer to inject a record $183 billion into the money market helped the dollar pull away from the day's low.
Crucial to dollar/yen's near-term direction is the size and financing sources for Japan's reconstruction. While there are no precise figures on the size of the country's reconstruction efforts, the source of financing is more straightforward. The dollar rose as high as 82.469 yen on electronic trading platform EBS, rallying from 80.60 yen , the lowest since early November. By mid-afternoon Tokyo trading the dollar was at 82.06 yen, up 0.2 percent.
Initial support this week is at 81.57, analysts at ActionForex.com said. A break of 81.57 yen would make a target 80.93 as the next support, and a subsequent breach of 80.93 would signal the resumption of a downtrend. The euro also recovered 0.4 percent to 114.35 yen from a low around 112.62 yen.
A senior finance ministry official reiterated that Japan would take decisive measures on currencies if needed, when asked about the yen's strengthening against the dollar in the wake of Friday's devastating earthquake. The euro was last at $1.3930, up 0.2 percent on the day. Currency bid prices at 2:17 am EDT (0617 GMT). All data taken from Reuters calculated from the levels at 4:30 pm (2030 GMT) in thhe previous New York session.