The yen tumbled across the board on Thursday, hurt by talk of Japanese retail demand for overseas assets, while the dollar rose 1 percent against the Japanese currency, aided in part by Moody's affirming its top credit rating for the United States.
The dollar jumped to its highest in more than a week against the yen and edged up against a basket of currencies, building on gains made on Wednesday after the second of three large US Treasury auctions this week drew solid investor demand.
The greenback fell steeply last week, hitting its lowest in five months against the euro, on concerns about the sustainability of the US government's top credit rating after Standard & Poor's gave a negative outlook to Britain's AAA rank. Moody's Investors Services affirmed its top rating for the world's largest economy on Wednesday, but warned that if the US failed to reduce debt levels once the economy returned to growth then its top grade could come under pressure.
"Sovereign risk concern is fading," said Masafumi Yamamoto, head of FX strategy at Royal Bank of Scotland in Tokyo. The dollar rose 1.4 percent to 96.65 yen, pulling away from a two-month low of 93.85 yen hit last week which is roughly the base of a trading range stretching to 100 yen that has been in place since February.
The greenback touched its highest in a week at $1.3793 per euro, after climbing about a cent on Wednesday helped by a European Central Bank official comment that euro zone rates could go lower. But it had retreated to $1.3830. The dollar failed to follow through on gains against commodity-related currencies, with the Australian and New Zealand dollars both rising on the day and climbing steeply against the yen. Sterling too rose sharply against the yen.
On Wednesday, Japanese retail investors poured $2.4 billion into new mutual funds investing in global semiconductor firms, banks and US junk bonds, in the biggest single day of fund launches this year. Such investment trusts that target overseas assets can generate yen-selling flows, which often hit the market soon after they are launched.
The Australian dollar rose 1.5 percent to 75.00 yen, the euro rose 1.2 percent to 132.62 yen and sterling climbed more than 1 percent its highest since early November at 153.76 yen. Growing hopes that the worst of the US and global economic recessions may be over has helped spur a rally in currencies such as the Australian and New Zealand dollars in the past few months.
The New Zealand dollar gained 0.6 percent to $0.6189 after S&P said it had affirmed New Zealand's credit rating and revised the outlook to stable following the country's annual budget on Thursday. The market had been concerned about the risk of a credit rating downgrade after the budget and the kiwi climbed 2 percent against the faltering yen to 59.67 yen once the rating issue was out of the way.