Tokyo rubber futures sank on Thursday hit by the yen's rise to a three-month high against the US dollar, with traders focused on whether the market would breach the key 142-yen mark.
The benchmark March 2005 contract on the Tokyo Commodity Exchange (TOCOM) settled down 0.7 yen per kg at 142.7 yen, just 0.1 yen higher than the session low, while the day's high was 143.8 yen.
The day's trough was the lowest level since the benchmark hit 142.00 yen on October 6.
"Liquidation gained momentum as the (dollar fell) to the 107-yen level," a Tokyo broker said.
The broker said support was likely to come at 142 yen, but that if it breached that level, the next psychological support level was expected to be 140 yen. Other months fell by 0.6 to 1.2 yen.
I'm the currency market, the dollar was at 107.72/7.77 yen, compared with 108.25/33 in late US afternoon trade. The US currency fell to a three-month low against the yen as traders focused on growing concerns about the US economic outlook and the yawning trade deficit amid a lack of fresh economic data.
It fell through 108 yen for the first time since July 12. Market players said the fluctuation in crude oil prices would continue to cast a long shadow over TOCOM rubber.
US light crude held firm below $55 a barrel, keeping the previous day's strong gains after US data showed another weekly draw in heating oil inventories, spurring fears of a winter fuel crunch.
The record high was $55.33 set on Monday. Market players say strong crude prices are a double-edged sword for the rubber market, having the potential to both weaken and strengthen the market.
So far TOCOM rubber has mostly tracked crude's rise on anticipation that demand would shift to natural rubber from synthetic rubber, a petroleum product. Some traders say strong crude prices could dampen consumption, and lead to a decline in rubber demand.
The volume of TOCOM rubber traded on Thursday was an estimated 4,113 lots, down from Wednesday's 5,627 lots. Open interest stood at 26,872 lots as of the end of Wednesday, versus 27,327 lots on Tuesday.