Markets

Dollar hits 15 month low vs yen, sentiment shaky before US inflation data

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TOKYO: The dollar slid to a 15-month low against the yen on Wednesday, as investors remained on edge ahead of key US inflation numbers later in the day, underscoring fragile risk sentiment following the recent shakeout in equity markets.

The US currency was 0.8 per cent lower at 106.960 yen after plumbing 106.840, its weakest since November 2016, with a drop in Japanese shares increasing demand for the yen which is often sought in times of market turmoil.

The dollar had enjoyed a brief respite against its Japanese peer overnight as US shares managed to gain for the third successive session on Tuesday following last week's sharp downturn. But it began to wobble again as Japan's Nikkei surrendered early gains and fell to four-month lows on Wednesday.

Near-term focus was on how far the dollar would slide against the yen after falling below 107.320, which was seen as a key technical level, with the market paying little heed to jawboning by Japanese officials.

Japan's Chief Cabinet Secretary Yoshihide Suga warned on Wednesday that stable currency market moves were "extremely important", signalling concern over recent yen gains that could undermine a strengthening economic recovery.

"Trend-following macro funds see the yen appreciating further. There are no fresh factors, but for speculators, anything that appears yen-supportive is welcome, even in hindsight," said Yukio Ishizuki, senior forex strategist at Daiwa Securities in Tokyo.

Lingering expectations the Bank of Japan would follow the Federal Reserve and the European Central Bank in eventually normalising monetary policy have helped the yen appreciate, even though the Japanese central bank has reiterated that it intends to stick to its ultra-easy stance.

"Many trend-following players have a scenario drawn up in which the BOJ follows a monetary policy normalisation cycle," said Koji Fukaya, president at FPG Securities in Tokyo.

"However, following such a scenario and driving the yen higher means that the BOJ would be even more determined to stick to an easy policy and prevent the currency from appreciating and shield the domestic stock market."

Volatility in the risk asset markets have been a key driver of currencies and investors now await US January inflation data due at 1330 GMT, with the indicator seen either upsetting the equity market's fragile recovery or clearing the way for additional gains.

Wall Street shares slumped from record highs scaled late in January after Treasury yields rose to four-year highs, largely because of inflation worries.

Seasonally adjusted US consumer price index data is expected to show inflation of 0.3 per cent in January versus 0.1 per cent in December.

The dollar's fall against the yen comes against the currency's broader declines against a number of peers.

The US currency attracted demand during the global market tumult seen earlier this month, although it had fallen to a three-year low against a basket of currencies in January.

The dollar was weighed by factors including the prospect of the United States pursuing a weak dollar strategy and the greenback enjoying less interest rate advantage as other countries part with easy monetary policy.

The dollar index against a group of six major currencies was down 0.3 per cent at 89.446 after dropping nearly 0.6 per cent overnight.

The euro added to overnight gains and last traded up 0.25 per cent at $1.2383 after going to a one-week high of $1.2392.

Against the yen, however, the common currency fell 0.6 per cent to 132.365 yen.

The Swiss franc rose 0.35 per cent to 0.9313 franc per dollar and the pound added 0.2 per cent to $1.3919.

The New Zealand dollar gained 0.65 per cent to $0.7320 after a Reserve Bank of New Zealand's quarterly survey showed business managers forecast annual inflation to average 2.11 per cent over the coming two years, from 2.02 per cent in the previous survey.

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