The Fed moves will alleviate immediate downward pressure on the dollar, but underlying fears will continue.

The yen weakened sharply in US trading on Tuesday following the Fed’s move to boost liquidity. Risk aversion has eased, at least temporarily, which triggered a recovery in high-yield currencies and triggered stop-loss yen selling. The Japanese currency weakened to 103.40 which eased immediate speculation over a dollar decline to the 100 level.

Domestically, the fourth-quarter GDP growth estimate was confirmed at 0.9%, which provided some relief, but the forward-looking data was less supportive. Consumer confidence was at a 5-year low while the Bank of Japan warned over downside risks to the economy. The government’s Bank of Japan Governor nominee Muto has been vetoed by the Upper House of parliament which will unsettle the yen to some extent, especially with current governor Fukui due to leave office next week.

The increase in global stock markets lessened immediate yen demand, but there was evidence of increased exporter selling and the US currency was testing the 103.0 level in early Europe on Wednesday. Underlying risk aversion is also likely to remain at elevated levels which will curb yen selling pressure.