The yen rose towards a 15-year high against the dollar on Tuesday as traders looked to test Japanese authorities' resolve on intervention after the Bank of Japan's easing steps the previous day failed to scare investors from betting on it rising further.
With mounting US economic worries seen keeping investors away from risk assets such as high-yielding currencies, the market is likely to push up the low-yielding yen, which could eventually prompt Japan to sell its currency in the markets for the first time in more than six years. On top of closely watched jobs numbers on Friday, there is housing price data on Tuesday and manufacturing data on Wednesday.
Traders said any Japanese intervention is likely to be a unilateral action, given the perception that neither the United States nor Europe would be keen to help boost the value of their own currencies in light of weakness in their economies. Japanese authorities are expected to buy the dollar against the yen to curb the yen's strength if the dollar slides 3-4 yen in one day, traders said.
The dollar slid 0.4 percent to 84.27 yen, edging near the 15-year low of 83.58 hit last week. It fell 0.7 percent on Monday as investors took profits after the Bank of Japan announced its decision to expand a cheap funding programme. The greenback fell nearly 2.6 percent against the Japanese currency this month after sliding 2.2 percent in July and around 3 percent each in June and May.
The Australian dollar fell 0.3 percent to 75.24 yen, dented by a 3 percent fall in Tokyo's Nikkei stock average that fuelled risk aversion among Japanese investors. Japanese retail margin traders boosted their combined net long position in dollar/yen and six cross/yen pairs by 53,138 contracts, or 13 percent, to 461,456 contracts on Monday, according to Tokyo Financial Exchange data. This boosted their combined net long positions in seven major currencies against the yen near a record high of 508,101 lots marked on August 24.
In another sign of investor risk aversion, the euro slumped to a record low against the safe-haven Swiss franc on heavy selling by emerging market players. The euro fell as low as 1.2934 franc, down 0.4 percent on the day. The euro fell 0.5 percent against the yen to 106.65 yen, crawling towards a nine-year low of 105.44 yen hit last week.
Against the dollar, the euro was little changed on the day at $1.2659. It is expected to find some support around $1.2605, a 50 percent retracement of the euro's rally from June to early August, and at a low of $1.2588 hit a week ago, although a break below these levels could set off a fresh downward trend.