The dollar fell to a new 15-year low against the yen on Tuesday as Japanese Prime Minister Naoto Kan won the ruling party leadership vote, raising speculation Tokyo would not act immediately to stem the yen's rise. Kan will keep his job after an unexpectedly decisive victory over party heavyweight Ichiro Ozawa, who had made more strident calls to curb the yen's advance.
Dollar falls to 9-mth low vs Swiss franc, below parity By 1120 GMT, the dollar was down 0.6 percent to 83.18 yen, after dipping to 83.07 yen on trading platform EBS. Buying ahead of option barriers at 83.00 yen contained the downside, traders said. Stop-loss orders were seen below at 82.85/90 yen.
"With the market having positioned for a Kan victory, the scope for considerable further yen appreciation may be limited," said Derek Halpenny, European head of global currency research at Bank of Tokyo-Mitsubishi UFJ. "The one negative aspect for Kan ... is that he only got 50.7 percent of the vote of Diet members. This hardly gives Kan a strong mandate for leading the country and we suspect once the markets focus on this aspect the yen may weaken back a bit."
Still, traders said any dollar rise may be short-lived, with Monday's 84.43 intraday peak seen as the first point of resistance, due to expectations Japanese exporters would sell more dollars before their half-year book closing on September 30. "The threat of intervention will hang over the market but will there be international co-operation? Probably no. So the market will continue to test Kan's resolve," said Simon Derrick, head of currency research at Bank of New York Mellon.
Analysts said if the dollar falls past 83 yen and hits 82 yen in a couple of hours, the risk of intervention would rise dramatically. "With the political drama out of the way, economics will drive intervention and if there is a rapid appreciation you could see them coming to stop it," said a currency strategist at a Japanese bank. The euro hovered near the day's low against the dollar of $1.2830 after the German ZEW economic sentiment index fell more than expected in September.
It pared some of Monday's gains made on solid Chinese data and relief over new Basel III banking rules. A major resistance point was seen at $1.2920-30, a level that has blocked the currency several times since August. The dollar fell below parity against the Swiss franc to hit a nine-month low of 0.9996 francs on EBS, and a one-month low against a basket of currencies.
"The franc was helped by a lot of customer flows from Europe, investors who are moving away from risk," said Paul Robson, currency strategist at RBS. The dollar index edged higher to 81.98, bouncing from its 200-day moving average at 81.761. A clear break below that could stoke expectations of further weakness in the US currency. Market players will look to US retail sales data due at 1230 GMT and expected to rise 0.3 percent in August from the previous month. A lower-than-expected reading could trigger further yen gains against the dollar, some traders said.
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