The Japanese yen rose to the highest level against the dollar in 15 years on Tuesday, as U.S. home sales data dropped to the lowest level since May 1995, bolstering concerns over U.S. economic recovery and the yen continued to strengthen on rising risk aversion.
The greenback edged lower from 85.19 versus the Japanese yen in Asia as Nikkei-225 dropped and closed the day down by 1.33%. Later, dollar extended its weakness and fell sharply after Japanese Finance Minister Noda's comments. The greenback's decline accelerated after triggering sizeable stops below 84.72 and tumbled to a fresh 15-year low of 83.58 in NY on the disappointing U.S. house sales data, which dropped by 27.2% to an annual rate of 3.83 million units, the lowest level since May 1995, before staging a recovery. Eur/jpy also tumbled from 107.80 to a 9-year low of 105.44 b4 recovering.
Japanese Finance Minister Noda said recent currency moves were clearly one-sided and excessive, disorderly currency moves could harm economy and the financial system. Noda said he was watching forex moves very carefully with great interest but he had no comment on currency intervention. Noda added 'need to communicate closely with BOJ, act appropriately and flexibly'. His comments were viewed as a sign the authorities were not yet ready to curb yen strength.
Declines in stock markets also prompted investors to buy safe-haven currencies such as yen and chf, as DJI tumbled by 133.96 points, or 1.32% and closed the day at 10040. FTSE-100, CAC-40 and DAX also sank by 1.51%, 1.75% and 1.26% respectively.
The greenback was supported in NY afternoon as Nikkei reported that BOJ was considering additional steps to loosen monetary policy. The report stated that Japanese Ministry of Finance might consider unilateral yen-selling market interventions if speculators drove up the Japanese currency.
In addition, Japanese Prime Minister Kan said that he wanted to think of yen steps while listening to outcome of central bankers meeting.
Earlier in Asia, Japanese government spokesman Sengoku (Chief Cabinet Secretary) said the government was closely watching market moves, including whether that were driven by speculators.
The single currency traded narrowly in Asia after Monday's weakness to 1.2647 and dropped to 1.2588 due to renewed risk aversion and the fall in European stock market together with cross selling in euro versus yen. However, euro rebounded strongly in NY on dollar's weakness against other European currencies due to the release of U.S. home sales data and climbed to an intra-day high of 1.2720 but then fell sharply to 1.2625 in late NY trading session, as Standard & Poor's cut Ireland's long term rating one notch to 'AA-' and gave the country a negative outlook.
The British pound fell initially from 1.5510 and penetrated last Friday's low of 1.5464 to 1.5373 in European morning. Later, although cable staged a strong rebound in tandem with euro after the release of U.S. home sales data and climbed to 1.5490 in NY, sterling dropped again to 1.5389 in late NY trading session after Ireland downgrade.
In other news, Martin Weale, the newest member of the Monetary Policy committee, said that Britain faced the risk of sliding into recession and the central bank's growth forecast for this year and next might be too optimistic. Weale said dangers ahead included a renewed hike in unemployment as well as declining house prices and another banking crisis.
The Swiss franc strengthened against dollar amid safe haven buying of chf, as usd/chf tumbled from 1.0451 to 1.0287. Eur/chf also sank from 1.3180 to a record low of 1.3049.
Economic data to be released on Wednesday include: Japan CSPI, Trade balance (jpy), Export, Import, Germany Ifo index, U.S. Durable goods, ex. Defense, ex. Transport, New home sales, House price index, House Price, Building Perm. Revised.