Yen gets boost from Japan worries
Tuesday, March 15, 2011; 5:07 PM
NEW YORK -- The U.S. dollar was lower against the Japanese yen late Tuesday as investors worried over the nuclear crisis in Japan and the worldwide sell-off in stock markets
The move to buy yen may seem counter-intuitive considering the devastation wrought by the earthquake and tsunami in Japan, and the intensifying nuclear threat. But investors expect Japanese investors to close down overseas bets and bring their money home.
"Japanese investors' proclivity towards liquidating overseas assets in the face of risk aversion is well-known," said a group of UBS currency analysts in a research note.
Demand for the yen may keep up as Japan seeks to fund the country's restructuring. After a huge Japanese earthquake in 1995, the yen gained about 20 percent against the dollar in three months.
Continued strength in the yen - the currency has risen about 14 percent against the dollar in the past 12 months - could weigh further on Japan's economy. A stronger yen cuts into the profits of Japan's big exporting corporations.
The dollar fell to 80.83 Japanese yen from 81.65 yen - in striking distance of the post-World War II low of 79.75 yen hit in 1995.
The U.S. dollar was also lower against the euro Tuesday after the Federal Reserve expressed more confidence in the U.S. economy. In late afternoon trading, the euro rose to $1.40 from $1.3995 late Monday.
It's a reversal from earlier in the day when the dollar was higher as investors bought into the U.S. currency after the worldwide sell-off in stock markets.
"That kind of wore off as the market became more comfortable with the risk in Japan," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.
Japan's benchmark Nikkei 225 sank 10.6 percent - more than 1,000 points - on Tuesday, on top of a 6 percent drop Monday. But in the U.S. the Dow Jones industrial average recovered after falling as much as 297 points to close down 137 points, or 1.15 percent.
In a statement released after a meeting Tuesday, the Federal Reserve said that the U.S. recovery is on "firmer footing" and the job market is improving. During the meeting the Fed unanimously agreed to maintain the pace of its $600 billion Treasury bond-purchase program that is meant to help the economy grow and to lower unemployment in the U.S.
In other trading Tuesday, the dollar hit a record low of 0.9168 Swiss franc, trading up to 0.9175 by late Tuesday. On Monday, the dollar was worth 0.9242 Swiss franc.
The British pound dropped to $1.6092 from $1.6174 and the dollar gained to 98.24 Canadian cents from 97.45 Canadian cents.
The dollar leapt against the Scandinavian currencies and the Australian and New Zealand dollars, and rose against emerging-market currencies in Latin America, Eastern Europe and Asia.