The yen fell against the euro and the Australian dollar on Wednesday as investors concluded that China's unexpected raising of banks' reserves requirement ratio would not derail growth, returning cautiously to riskier and higher-yielding currencies. The yen had advanced broadly the previous day after China's central bank surprised world markets by taking a step towards a tighter policy, prompting investors to unwind yen selling positions against currencies such as the commodity-linked Aussie.
China's move is the strongest step to date by its central bank as it starts to normalise monetary policy from very loose conditions, with an eye towards reining in surging asset prices.
But yen crosses stabilised on Wednesday after losses in Shanghai's stock market following the tightening seemed to have been contained and analysts said the Chinese central bank's move was designed to control bank lending and prevent speculative bubbles, helping moderate the speed of economic growth. China's move on Tuesday had led investors to cut sizeable long positions in the Australian dollar.
Many investors had been borrowing in yen to buy a range of assets leveraged to Chinese and global growth. The dollar edged up 0.1 percent to 91.11 yen, having lost more than 1 percent on Tuesday to as low as 90.73 yen. The euro rose 0.2 percent to 132.08 yen after having fallen 1.4 percent on Tuesday with support seen around the 131.20 yen area.
The Australian dollar rose 0.4 percent to 84.02 yen, after having registered its biggest daily drop in eight weeks on the China news. Support is seen around the 83.00/20 yen level, traders said.
Mizuho Securities' Hayashi said investors find the Australian dollar attractive at below 84 yen so the currency is unlikely to extend its slide from the current level. The Aussie held above $0.9200, after it fell more than 1.2 percent on Tuesday, with investors cutting long positions on the slide.
The euro was nearly flat on the day at $1.4495, getting some support from comments by Greek Finance Minister George Papaconstantinou. Worries about Greece's financial situation have weighed on the euro in recent weeks. But Papaconstantinou told a German newspaper on Tuesday that Greece had no more skeletons in the closet, and had a solid basis for cutting its deficit.
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