The yen slipped to a record low against the euro and hit its weakest in a decade and a half versus sterling and the Australian dollar on Monday as investors continued to sell the low-yielding yen for assets in higher-yielding rivals.
The dollar hovered near a 4-1/2-year high against the yen but stayed on the back foot against the European currency after a rally on Friday inspired by surprisingly strong US employment data quickly lost steam. Traders said investors found comfort in further building risky positions like carry trades as regional stock markets rose to record highs.
"Solid US economic data eased worries about a possible global economic slowdown in summer," said Kosuke Hanao, head of forex sales at HSBC in Tokyo. "That means selling the dollar and the yen, while buying risky assets," Hanao added. Tokyo's Nikkei share average rose 0.55 percent, while Hong Kong shares struck a record high and Taiwan stocks hit a seven-year high.
In carry trade, investors borrow low-yielding currencies like the yen to fund investments in higher-yielding currencies and assets. The yen initially rose on Monday after data showed a surprisingly strong rise in Japanese machinery orders, but it soon pulled back on the view that rates will rise only slowly even as the Bank of Japan is seen poised to lift rates to 0.75 percent as early as August.
"There's still demand for yen crosses as usual, so they've been pushing higher," said Luke Waddington, head of forex trading at Royal Bank of Scotland in Tokyo, while adding that market movements were limited in sluggish trading.
"The drivers that keep grinding movements are interest rates, and people are continuing to buy currencies with high rates and sell the ones with low rates."
The euro edged up 0.2 percent to a record-high 168.55 yen on electronic trading platform EBS, while the Australian dollar popped above 106 yen for the first time in 16 years.
Sterling edged up to around 248.70 yen, its strongest since 1992, after the Bank of England lifted rates to 5.75 percent last week, while the New Zealand dollar hovered around 96.55 yen, near its highest level in 20 years. The Canadian dollar hit a 16-year high of 118.08 yen ahead of a policy meeting by the Bank of Canada on Tuesday, when it is widely expected to lift its overnight rate to 4.5 percent.
The dollar rose 0.25 percent to 123.60 yen, heading towards 124.14 yen touched last month for the first time since December 2002. The US currency recovered from a slip to around 123.35 yen after the yen ultimately proved unable to capitalise on data released on Monday showing that Japanese machinery orders rose 5.9 percent in May from April, beating forecasts for a 2.3 percent rise.
The single European currency was little changed against the dollar, hovering around $1.3625, near a record high of $1.3683 hit in April.
"Dollar gains on the jobs data were short-lived as people came in to buy euros after it slipped," said a trader at a Japanese trust bank. "The focus remains on currencies like the euro, whose rates are expected to rise," he said. The euro was well supported after the European Central Bank last week encouraged market expectations that a rate rise in September is quite likely.
Closely watched US data on Friday showed that 132,000 jobs were created in June, beating the consensus forecast of 120,000 in a Reuters poll but ultimately doing little to alter the market's belief that the Federal Reserve will keep rates pinned at 5.25 percent until the end of the year.
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