Yen strikes three-month high

The yen surged across the board on Monday, striking a three-month high against the dollar as another wave of investors rushed to reverse bets against the Japanese currency with the market still anxious over tumbling global stock markets.
The yen's sharp rally against major currencies has stoked investor nervousness and exacerbated a pull-back from riskier assets that drove the Nikkei average down more than 3 percent on Monday.
The benchmark Shanghai Composite Index tumbled more than 3 percent the same day, extending losses after triggering a global sell-off last week, and other Asian stock markets dropped more than 2 percent on Monday.
Traders said Monday's sell-off of currencies versus the yen was triggered partly by the Chicago Mercantile Exchange's announcement on Friday that it was raising the minimum amount of money required to trade yen futures due to higher market volatility.
Traders also cited hedge funds that base their trades on computer models as heavy sellers, helping drive sterling down as much as 2 percent against the yen and other currencies down more than 1 percent. "It looks like a downward spiral is going on," said Masashi Kurabe, senior manager in the foreign exchange trading department at Bank of Tokyo-Mitsubishi UFJ.
The yen has soared as market players frantically unwind carry trades, in which investors fund purchases of high-yielding currencies and assets by borrowing in low-yielding currencies such as the yen. Carry trades had played a role in the yen's broad slide that took it to a 21-year low on a trade-weighted and inflation-adjusted basis in January.
The dollar tumbled to a three-month low of 115.40 yen and was last at 115.60 yen down 1.1 percent from late last week. The euro fell to 151.75 yen before crawling back to 152.25 yen down 1.2 percent. The single currency's big losses against the yen dragged it down to $1.3160 off 0.3 percent on the day.
Sterling took the biggest hit, plunging to around 222.50 yen before recovering to near 223.25 yen. The pound, which had been one of the biggest beneficiaries of the pile-up in yen short positions, has shed 8 percent from a 14-year high struck in January.
Sterling also fell nearly 1 percent to $1.9260 matching its low from January 8, which is a key chart support level and, if broken, could open the way for a steeper drop. Yen IMM futures soared to a three-month high of 8683 on heavier volume than usual at nearly 25,000 contracts. The CME late last week lifted margin amounts by 25 percent for futures in the yen against the Australian dollar, the euro and the British pound.
The move also prompted Japanese day-traders of currencies on margin, who can magnify the size and risk of their bets, to sell some of the big positions they have built up in higher-yielding currencies against the yen, traders said.
Traders will be awaiting this week's US economic indicators, including monthly payrolls data on Friday, to see if the figures provide any more reason to expect the Federal Reserve to cut interest rates, which could spark more dollar selling. "Weak jobs figures could exacerbate stock losses, which could boost the yen even more," said a trader at a US brokerage in Tokyo, adding a dollar fall to as low as 112 yen could not be ruled out this week.