Yen sticks to 8-1/2-month low

The yen stuck close to an 8-1/2 month low against the dollar on Tuesday as concerns grew that high oil prices would hamper energy-reliant Japan's economic recovery. The dollar was firm across the board ahead of an expected interest rate increase by the Federal Reserve this week, which would further bolster yield appeal for the greenback.
US crude oil prices held above $60 per barrel on Tuesday, having risen nearly 30 percent in just over a month due to nervousness over a global strain on production and refining capacity.
Worries that high oil prices are hitting Japan's export-driven economy with an oil-induced slowdown in the United States and China pushed the yen as low as 109.92 per dollar.
"The strong rally in oil prices has hit market sentiment as have geopolitical concerns," said Lena Komileva, market economist at Tullett Liberty.
"The yen's fall is also in the context of a weaker euro. The dollar's recent movement is probably a reflection that the focus is on yield."
By 1150 GMT the dollar stood near the 8-1/2 month high to 109.88 yen, up 0.6 percent on the day.
The euro was down 0.5 percent at $1.2097, having hit a 10-month low below $1.20 last week. A survey by the GfK research group showed German consumer sentiment is set to worsen significantly in July because of anxiety over an expected September election and fears about potential costs a new government could impose.
This contrasted with Monday's Ifo business confidence survey, which rose for the first time in five months in June.
The Federal Reserve's interest-rate setting meeting, which ends on Thursday is also a focus for the market.
The Fed is expected to raise rates by a quarter percentage point to 3.25 percent. A Reuters poll on Monday showed almost all primary dealers with the Fed see a similarly sized rate rise at the central bank's August meeting.
Eurozone rates have stood at a historically low 2 percent for more than two years, and European Central Bank officials have held their ground against cutting interest rates.
"The theme remains that US interest rates are going up at a time when rates are going down or holding steady in other core areas," said Shahab Jalinoos, senior currency strategist at ABN Amro.