The dollar plunged below ¥95 in Tokyo trading on Monday, on concerns over a bank deposit levy that Cyprus is required to introduce in exchange for an international bailout.
At 5 p.m., the dollar was quoted at ¥94.73-74, sharply down from ¥96.03-05 at the same time Friday. The euro plummeted to $1.2922-2923 from $1.3031-3034 and to ¥122.42-45 from ¥125.16-18.
Eurozone finance ministers agreed at a weekend meeting on a €10 billion bailout package for Cyprus that sets austerity terms including a tax of up to 9.9 percent on deposits at banks in the troubled island country.
Concerns that the harsh austerity may trigger another crisis in the currency bloc sent the euro tumbling, leading to the greenback’s slump as low as around the ¥94 threshold in the early morning overseas, traders said.
The dollar’s weakness came after it lost ground in New York trading Friday as the core U.S. consumer price index for February came in line with market expectations and the University of Michigan’s consumer confidence index for March dropped from the previous month.
After the Tokyo market opened Monday, the dollar rallied to near ¥95 on purchases by Japanese import companies and buying on dips in the morning, but briefly weakened below ¥94.50 in the afternoon as Japanese stocks extended losses, traders said.
“Short covering of the yen became dominant, as ‘risk-off’ sentiment spread in the market,” a foreign exchange brokerage official said.
Meanwhile, an analyst at a major Japanese bank said, “The problem of Cyprus is a special case and it is unlikely to cause a crisis across the eurozone.”
At the same time, persistent expectations of aggressive monetary easing by the Bank of Japan capped the Japanese currency’s topside versus other major currencies, as Haruhiko Kuroda is set to assume the post of BOJ governor on Tuesday, traders said.
“There are many market players who want to buy (the dollar versus the yen) at lower prices,” said Takuya Kanda of the Gaitame.com Research Institute. “If Cyprus’ parliament accepts the deposit taxes, that could spark a flurry of short covering (in the euro).”