The yen edged lower on Wednesday, taking its cues from a short-covering bounce in Tokyo shares, but may see more gains near-term as jitters about Japan's nuclear crisis keep investors on edge and risk appetites subdued. Japan's Nikkei share average climbed 5.7 percent, regaining some ground after plunging 10.6 percent a day earlier following reports a quake-crippled nuclear power plant had sent radiation wafting toward Tokyo.
Wednesday's bounce in Tokyo shares gave some respite to the Australian dollar, which had slid 3 percent against the yen on Tuesday. Higher-yielding currencies like the Aussie are seen as proxies for global growth and sold in times of stress. The US dollar also rose against the yen, edging up 0.1 percent to around 80.84 yen . The dollar had fallen to around 80.60 yen on Tuesday, less than a yen away from the 1995 record low of 79.75 yen The Australian dollar rose 0.6 percent against the yen to 80.31 yen.
Japanese banks are piling up cash so they can respond to any increase in cash needs and withdrawals among depositors, he added. However, Soma and other traders said any repatriation by Japanese insurers, if it occurs, is only likely to emerge several months from now, after the scale of damages becomes clearer. Indeed, traders say repatriation by Japanese life insurers will likely have only a limited impact in lifting the yen, and that the yen's rise this week has been driven by short-term speculators such as trend-following commodity trading advisors (CTAs).
"Their repatriation will most likely be spread over a few months while there's counter-flows such as foreign investor selling of Japanese shares. The yen's strength has to do with the typical risk aversion trade," says Hiroshi Yokotani, fixed income director at Alliance Bernstein in Tokyo.
The safe haven Swiss franc remained near a record high against the dollar. The greenback held steady near 0.9163 franc, hovering near a record low of about 0.9140 franc hit on Tuesday. The euro dipped 0.1 percent to $1.3986, after Moody's cut the sovereign rating of Portugal by two notches and kept a negative outlook.