The yen rose broadly on Monday as high-yielding currencies and Asian equities faltered, with talk of possible demand from Japanese exporters and investor fund repatriation also giving the yen a boost. Data showing that Japan's economic growth slowed markedly in April-June helped drag Tokyo shares lower. The dip in equities gave support to the yen, which is a funding currency for carry trades and tends to rise in times of market stress.
A fall in the 10-year US Treasury yield to a fresh 16-month low on Monday was one factor weighing on the dollar against the yen, due to the high recent correlation between dollar/yen and Treasury yields. The yen was also bolstered by talk of yen-buying by Japanese exporters and market speculation about possible fund repatriation by Japanese investors related to coupon payments on US Treasuries due around now.
"I think the basic direction is toward dollar weakness and yen strength," said a trader for a major Japanese bank. But the yen's gains were tempered by caution ahead of a possible meeting between Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa later this week to discuss the currency's strength and possible responses.
The dollar dipped 0.4 percent against the yen to 85.83 yen, slipping back in the direction of a 15-year low of 84.72 yen struck on trading platform EBS last week. Traders said there was a decent amount of bids in dollar/yen on the downside, all the way down to around 84.50 yen, and such bids were likely to support the dollar.
The New Zealand dollar fell 0.7 percent against the yen to 60.43 yen and the Australian dollar slipped 0.6 percent to 76.44 yen, while MSCI's broad measure of Asian shares outside Japan shed 0.3 percent. The euro dipped 0.1 percent against the yen to 109.81 yen, having earlier dropped as low as 109.25 yen on trading platform EBS. Daily Ichimoku charts are now flashing a sell signal for the euro against the yen, with the euro having dropped below the cloud and into bearish territory.
The euro edged up 0.3 percent against the dollar to $1.2795, having pared its losses after dipping to $1.2734 on trading platform EBS earlier on Monday, its lowest against the dollar in almost a month. Last week, the yield spreads between government bonds issued by peripheral euro zone countries and German bonds widened due to concerns over the cost of supporting the Irish banking sector and a lacklustre debt auction in Italy.