TOKYO: The dollar skidded to its lowest level against the yen in a month on Tuesday, as Treasury yields fell on increased demand for safe-haven assets against a backdrop of plunging oil prices.
The dollar fell about 0.5 percent against the yen to 117.83 , as markets in Tokyo reopened after Monday's public holiday.
It earlier touched 117.74 yen, its lowest level since Dec. 17.
"Lower oil prices should be good for the US economy, but I think people worry about disinflation, even in the US, so the market may be worried that lower inflation will postpone the Federal Reserve's hiking plans," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.
"I think the US dollar will recover, but it could take some time," he added.
While Asian stocks were mostly firmer after upbeat Chinese trade data helped offset risk aversion generated by the continuing slide in crude oil prices, Japan's Nikkei underperformed and shed 1.7 percent as investors returned after the three-day weekend. With Treasury yields and stocks falling, Kathy Lien, managing director
at BK Asset Management in New York, believes the dollar could see a deeper near-term pullback towards the 116.75 to 117.50 range, before eventually making a run back to a 7-1/2 year peak of 121.86 struck late in December on the EBS trading platform.
The yield on benchmark 10-year Treasury notes wallowed at 1.907 percent in Asian trading, down from its US close of 1.912 percent on Monday.
The US 30-year bond yield fell to a near-record low overnight, while the five-year Japanese yield dropped to zero for the first time.
Japanese Economics Minister Akira Amari said on Tuesday that government forecasts for next fiscal year starting from April show it will be difficult to meet the Bank of Japan's 2 percent inflation target due to falling oil prices.
Tokyo markets digested weekend news that Japan's government will propose a record budget for next fiscal year of more than $800 billion but cut borrowing for a third year, as Prime Minister Shinzo Abe seeks to maintain growth while curbing the heaviest debt burden in the industrial world.
The euro got a leg up on the dollar, edging about 0.2 percent higher on the day to $1.1853. But the European unit remained not far above a nine-year nadir of $1.1754 touched last Thursday, with the European Central Bank on the verge of printing money outright to shore up the eurozone economy.
The ECB should not wait too long to take action to spur growth and inflation, senior ECB policymaker Ewald Nowotny told a panel discussion on Monday, adding that steps including bond buying were still being discussed.
The ECB is considering a hybrid approach that could include buying government bonds with risk-sharing across the euro zone and separate purchases by national central banks, sources familiar with the discussions have said.
ECB President Mario Draghi may announce a government bond-buying programme as soon as the Governing Council's next policy meeting on Jan. 22.
Many investors and economists believe that some kind of unlimited money-printing is the only way the central bank can revive the moribund euro zone economy.
By contrast, a Reuters poll conducted on Friday showed most top Wall Street firms still projected the US central bank would begin to move away from its near-zero interest-rate policy in June, despite forecasts that US inflation would continue to fall short of the Fed's 2 percent target.
The Canadian dollar clawed back lost ground after touching a fresh 5-1/2 year low against its US counterpart on Tuesday in line with tumbling oil prices.
The greenback rose as high as C$1.1978, closing in on a key psychological support level at C$1.2000.
It was last down about 0.1 percent at C$1.1960.
The greenback was last at C$1.1908 CAD=, up 0.3 percent.
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