The yen hit a three-year low against the euro and edged closer to 100 to the dollar on Wednesday, extending a slide triggered by the Bank of Japan's radical monetary easing. Gains against the yen helped push the euro to a one-month high against the dollar. The single currency has been supported in recent days by market speculation that Japanese investors looking for higher returns may opt for euro zone assets.
The euro hit 130.50 yen, its highest since January 2010 in the morning, and was later up 0.6 percent on the day at 130.36 yen. Analysts said the dollar could temporarily find it difficult to break 100 yen, however, given the rapid pace of its recent rise. "I think in the short term the dollar may struggle to rise further against the yen because the recent price action up has been too fast and too violent," said Vasileios Gkionakis, global head of FX strategy at UniCredit in London.
"But in the medium term we remain bearish on the yen, largely on the back of the massive BoJ monetary injection, which was one of the largest across the developed world." The dollar rose 0.5 percent to 99.53 yen, just shy of Tuesday's peak of 99.67 yen, its strongest since May 2009. Technical resistance lies at 99.73 yen, the 50 percent retracement of the dollar's drop from its June 2007 high of 124.14 yen to a record low of 75.311 yen set in October 2011.
Strategists also said hefty options barriers around 100 yen could prove tough to surpass for now but the dollar's eventual rise past that level seems inevitable. "Around 100 people have a lot of barriers they try to defend by selling. It makes sense we have stalled but we are going to go through that level, it's just a matter of time," said Geoff Kendrick, currency strategist at Nomura.
The dollar has jumped around 7 percent against the yen since last Thursday when the BoJ said it would pump about $1.4 trillion into the economy and double Japan's monetary base in two years to defeat deflation. The euro also stands to gain if Japanese investors seeking higher returns opt for euro zone assets. Plummeting Japanese bond yields have already sent Japanese investors in search of higher returns overseas, helping push French, Dutch, Austrian and Belgian bond yields to record lows, according to some market participants. "There is some talk that people are dumping Japanese assets and hunting for yields (with euro zone assets) and it is probably on the back of this the euro has been supported," UniCredit's Gkionakis said.
The single currency climbed to as high as $1.3122, its highest since March 8 and was last up 0.1 percent at $1.30985. The struggling yen also helped the Australian dollar extend gains to hit a 2-1/2 month high of $1.0528. The currency was earlier bolstered by data showing Chinese imports surged 14.1 percent on the year, beating market expectations.
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