The yen fell broadly on Tuesday after billionaire Warren Buffett offered to assume troubled bond insurers' liabilities, increasing investor appetite for risky assets such as stocks and high-yielding currencies.
Buffett told CNBC television that the plan of his Berkshire Hathaway company would cover $800 billion in municipal bonds, a step that investors hope might ease recent credit market turmoil. The move reigned risk appetite, sparking a global stock markets rally and sending the low-yielding yen tumbling across the board. Investors often use the yen to fund acquisitions of higher yielding assets and currencies.
The euro jumped to a session high of 157.05 yen, before retracing slightly to trade at 156.46 yen, still 0.7 percent higher on the day. It firmed 0.4 percent to 1.6066 Swiss francs.
The dollar firmed 0.3 percent to 107.27 yen, but fell against the euro, which raced to a session peak of $1.4614, before easing to $1.4581 - up about 0.4 percent from late Monday. A retreat by US stocks' off earlier highs limited the euro and the dollar's advance versus the yen.
Bond insurers guarantee more than $2.4 trillion of debt and have been struggling to hold on to their top credit ratings after suffering heavy losses from backing mortgage securities that have plunged in value. Markets worry that downgrades would rattle credit markets further and set off more large write-downs on Wall Street.
Analysts said Buffett's offer to bond insurers did not signal the end of market turmoil, and many said it did little to address underlying credit problems. Low yielding currencies such as the yen and Swiss franc tend to attract flows during periods of uncertainty as their low interest rates reflect the capital surplus of their respective countries. Sterling climbed 0.5 percent to $1.9612, shaking off earlier losses suffered after a tame British inflation report boosted expectations of more Bank of England rate cuts ahead.