The yen slid to its lowest in 3-1/2 months against the dollar on Tuesday after the Bank of Japan boosted its asset-buying program, though analysts cautioned that the yen's slide could slow as the effect of the monetary easing fades. The euro also fell after Moody's downgraded six European countries and warned it may cut three others' ratings.
The BoJ surprised markets by boosting its asset-buying and lending scheme by 10 trillion yen to 65 trillion yen to try to bolster Japan's economy. The entire increase is to be used to purchase long-term Japanese government bonds. The easing "played up concerns about the outlook for the Japanese economy. That could keep the door open for further easing down the road," said Joe Manimbo, senior market analyst with Travelex Global Payments in Washington, D.C.
"I think for the time being the Japanese yen is pushed to the back burner as a (safe-)haven asset, given fresh concerns about the health of the Japanese economy," he added. The dollar traded as high as 78.53 yen, surging more than 1 percent to its strongest since November 1, according to Reuters data.
The dollar subsequently traded at 78.47 yen, tracking its biggest one-day percentage gain since October 31, when Japan unilaterally intervened in foreign exchange markets to weaken the currency. The euro also climbed against the yen, reaching as high as 103.18 yen before levelling off at 103.07 yen.
The dollar on Tuesday jumped above its 200-day simple moving average, currently at 78.03 yen, for the first time mid-April, and a daily close above there would be a positive sign. The euro fell against the dollar and sterling fell to a two-week low against the greenback after ratings agency Moody's warned it may cut the ratings of France, Britain and Austria and downgraded six other European nations. The euro fell 0.7 percent to $1.3107, while sterling dropped 0.6 percent to $1.5671.
Sterling had been supported by a sense that the UK's credit rating was safe, said Ray Attrill, head of FX strategy for North America at BNP Paribas in New York. "That's now been challenged," he added. "I think some people will be questioning their appetite for gilts." Moody's move follows action by Standard & Poor's last month, when France and Austria lost their triple-A status while Italy, Spain, Portugal, Cyprus, Malta, Slovakia and Slovenia were downgraded.
Eurogroup President Jean-Claude Juncker has invited euro zone ministers to a conference call on Wednesday, February 15, to discuss a second Greek programme, he said on Tuesday, changing a previous plan to hold a meeting with the ministers in Brussels.