The dollar dropped to levels slightly above ¥97 in Tokyo trading Tuesday amid growing fears that the U.S. Federal Reserve’s expected start of tapering off its quantitative easing could destabilize global financial markets.
At 5 p.m., the dollar stood at ¥97.06-08, down from ¥97.60-62 at the same time Monday. The euro was at $1.3341-3345, up from $1.3327-3329, and at ¥129.50-53, down from ¥130.09-11.
The greenback climbed to around ¥97.80 in the morning, aided in part by Japanese importers’ buying, but fell back below ¥97.50 in the afternoon, in line with the key Nikkei stock average’s plunge. Drops in other Asian stock markets fueled dollar selling.
“Yen buying against the dollar backed by risk-off sentiment broadly gained momentum,” said an official at a foreign exchange brokerage.
“Investors have grown increasingly risk-averse due to the looming fears of the Fed action, particularly dumping currencies of such emerging economies as Brazil and India,” a major Japanese bank official said.
“Though the speculation about the Fed’s tapering would expand the U.S.-Japan interest gap and, as a result, work in favor of the dollar, players have to sell the dollar because such speculation destabilizes emerging markets and dampens stock prices,” another Japanese bank official said.
Given the persistent view that the Fed could begin scaling back its bond purchases by year’s end, the benchmark 10-year U.S. Treasury yield hit a two-year high of 2.88 percent Monday.
A foreign exchange margin trader, in the meantime, pointed out that “currently the dollar-yen pair is showing directionless moves, amid buying on higher U.S. interest rates and selling on stock falls vying with each other.”