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Risk aversion sends dollar below ¥99

JIJI

The dollar fell below ¥99 in Tokyo trading Wednesday as investor appetite for risk receded due to weaker stock prices.

At 5 p.m., the dollar was quoted at ¥98.53-54, down from ¥99.07-09 at the same time Tuesday. The euro stood at $1.3484-3486, down from $1.3512-3514, and at ¥132.87-89, down from ¥133.87-92.

The greenback moved narrowly around ¥98.60 throughout Wednesday, weighed down by lower Japanese and American stock prices and a drop in U.S. long-term interest rates. But its downside was supported by buybacks and real demand-backed purchases.

Since the U.S. Federal Reserve decided to maintain the pace of its asset purchases last week, the dollar’s upside has been capped at levels below ¥100. At the moment, the biggest factor affecting dollar-yen rates is the movements of stock prices.

“Japanese stocks moved at the mercy of the U.S. stock market, where a ‘risk on’ mood has waned,” a foreign brokerage house official said. “The dollar will remain sluggish against the yen for the time being.”

Many market players are forecasting that the Fed will start reducing the asset purchases by the end of the year. But some are beginning to project a later start.

Recent U.S. economic indicators, such as consumer confidence for September and a key home price index for July released overnight, “generally lack strength,” said an official of a margin trading service provider.

It may become difficult for the Fed to start scaling down the asset purchases by the end of the year if indicators showing sustainable U.S. economic recovery decrease further, a foreign bank official said.