Yen rallies broadly

The yen rose broadly on Tuesday, edging towards a record high against the dollar, as fears of a nuclear catastrophe in Japan sparked a sell-off in global stocks and commodities and prompted investors to close riskier trades funded by cheap borrowing in the yen.
The US dollar fell as low as 80.60 on trading platform EBS, not far from its record low of 79.75 struck in 1995. Traders said a New York daily close below 81.70 would signal a further drop toward the pair's historical low. The dollar held steady against the euro and yen after the Federal Reserve said the US recovery was gaining traction and rising inflation pressures will probably prove transitory as it stuck to its program of extraordinary monetary support.
"Japanese institutions are believed to be liquidating overseas investments," said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey. "And that forces other people to exit long carry trade positions and long risk positions. It really just becomes a negative feedback loop."
"For the short term, dollar/yen is probably going to stay under pressure," he said. The dollar last traded at 80.71 yen, down 1.1 percent on the day. Traders noted support around 80.25, the November trough. Strong long-term support stands at the psychologically important 80.00 barrier and the 79.75 historical low. Japan faced a potential catastrophe on Tuesday after a quake-crippled nuclear power plant exploded and sent low levels of radiation floating towards Tokyo, prompting some people to flee the capital and others to stock up on essential supplies.
Currencies such as the Australian and New Zealand dollars. The Australian dollar slid to a nine-week low of $0.9815 against the US currency and a four-and-a-half-month low of 79.23 yen, according to Reuters data. Asset managers, hedge funds, corporates and private clients were all net buyers of the yen for the first time since October, UBS said in a note on Monday. "Long yen positions are now considerable, and growing." the bank said.
The yen earlier briefly trimmed gains as a 100-basis-point drop versus the dollar spurred vague talk of yen-selling intervention by Japanese authorities. Traders later said there was no intervention, but they were wary Japan may act to stem a sharp yen rise, especially if the dollar were to fall below 80 yen.