The US dollar hit its lowest level in two weeks against the yen on Wednesday after Japan delayed a sales tax hike for longer than expected, raising concerns about the lack of Japanese monetary stimulus to halt the yen's rise. Japanese Prime Minister Shinzo Abe announced a delay in a sales tax increase of 2-1/2 years, putting plans for fiscal reform on the back burner amid weakness in the economy.
Analysts said the delay was longer than market participants had expected, raising concerns that Japan was also in no hurry to weaken the yen currency through monetary stimulus. "The delay of the sales tax was priced in, but markets did not expect such a long delay, and that's why we had such an exaggerated reaction," said Kathy Lien, managing director at BK Asset Management in New York.
The dollar sank 1.5 percent against the yen to a two-week low of 109.06 yen, continuing to ease from a one-month high of 111.43 yen touched on Monday. The euro was last up 0.35 percent against the dollar at $1.1169. The dollar pared losses against the euro, yen, and Swiss franc after the Institute for Supply Management (ISM) said its index of national factory activity came in at 51.3 for May. That beat expectations for a drop to 50.4 according to a Reuters poll of economists. The dollar index, which measures the greenback against a basket of six major rivals, was last down 0.36 percent at 95.547.
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