The dollar spiked to a three-month high against the yen on Monday after Japan intervened in the currency markets for the third time this year to stem the yen's rise.
The greenback, pressured recently by speculation about further easing by the Federal Reserve, spiked more than 3 percent to as high as 78.99 yen in a matter of minutes, the highest since Aug. 5, after hitting another all-time low of 75.31 yen on EBS earlier in Asian trade.
Finance Minister Jun Azumi confirmed that Japan intervened unilaterally, though he declined to comment on the size of the intervention. He added that the yen's strength threatens to derail the economy's recovery from the March earthquake.
It was very good timing. The BOJ laid the groundwork by easing last week. Speculators' yen-buying positions have piled up, and intervention is most effective in such cases, Yunosuke Ikeda, senior FX strategist at Nomura Securities.
Currency speculators doubled their net long position in the yen to 54,279 contracts in the week ended October 25, the highest since the beginning of August, the latest U.S. CFTC data shows.
This will likely be a one-off intervention but I think the government wants to stop the yen's strength, which is out of sync with gradually improving global economic fundamentals, said Ikeda.
With the Swiss franc pegged to the euro and the possibility of further easing weighing on the liquid U.S. dollar despite relatively healthy U.S. GDP figures for the third quarter, the yen again came into focus as rattled investors sought safety.
They have been intervening quite persistently (today)... My sense is that they might not quit very easily, a trader said. The trader added, however, that dollar/yen may start to become heavy at levels above 79 yen.
Speculators may have also been encouraged by a comment from the head of the European Financial Stability Facility (EFSF) Klaus Regling who said that currencies will not be a topic of discussion at the G20 meeting this week.
Due to Monday's intervention, the dollar surged 0.5 percent against the euro, pushing it down to $1.4083, off the two-month high of $1.4248 hit on Thursday. Still, the common currency was on track to end the month nearly 6 percent higher, its best monthly performance in just over a year.
The greenback also muscled in on the Australian dollar, causing it drop roughly 1 percent to last change hands at $1.0600, off a two-month high of $1.0753 set last Thursday. The dollar index rose 0.9 percent to 75.71
(Additional reporting by Masayuki Kitano in Singapore and Ian Chua in Sydney; Editing by Chris Gallagher)