The yen pulled back from 15-year highs on the dollar and a nine-year peak on the euro on Wednesday due to chances that Japanese authorities may take steps such as yen-selling intervention to stem the yen's rise. The caution initially stemmed from a Nikkei business daily report saying Japan's Ministry of Finance may consider unilateral yen-selling market intervention if speculators drive up the currency.
The yen's surge has also nudged up the previously negligible chances of monetary easing by the Bank of Japan before its September 6-7 rate review, sources told Reuters. The most likely step would be to expand the amount or extend the duration of a short-term funding operation. Japanese Prime Minister Naoto Kan said he feels a sense of crisis over the strong yen and wants to show a firm response soon, Jiji news agency reported on Wednesday.
The dollar rose 0.7 percent against the yen to 84.45 yen on short-covering, having pulled up from a 15-year low of 83.58 yen hit on trading platform EBS on Tuesday. There was also some talk of dollar-buying by Japanese importers. Traders said the dollar's fall could accelerate if it drops below 83.50 yen, at which the greenback had strong support in June 1995 after hitting its all-time low of 79.75 yen in April of that year. There is talk of option barriers on the downside at levels such as 83.00 yen, they said.
The euro climbed 0.9 percent to 106.97 yen after touching a nine-year low of 105.44 yen on EBS on Tuesday. The euro's upside was limited after Standard & Poor's downgraded Ireland to AA- and warned the outlook was still negative, fanning worries about eurozone sovereign debt and the banking system. The euro inched up 0.3 percent to $1.2664 after touching a 6-week low of $1.2588 on EBS on Tuesday. The single currency fared less well against the Swiss franc, collapsing to a record low around 1.3015 francs before edging back to 1.3050 francs.
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