The dollar paused on Thursday before an expected assault on the 100 yen level, but the yen extended its falls against other currencies and hit a three-year low against the euro. The euro was helped as Italy's three-year debt costs fell to their lowest since January at an auction. It also rose to a six-week high against the dollar.
--- Euro hits 3-year peak versus yen, 6-week high vs dollar
The US currency pulled back slightly from a four-year high against the yen struck on Wednesday, as investors took profit after a 7 percent surge since the Bank of Japan unveiled a $1.4 trillion stimulus plan last week. But analysts said it was only a matter of time before 100 yen was broken. "The 100 yen level is a psychological level that might take a bit of time to break, but this is still a very significant qualitative change by the Bank of Japan that is not fully priced in yet," said Ulrich Leuchtmann, head of currency research at Commerzbank.
"Therefore I do see dollar/yen moving higher." The dollar was last down 0.2 percent at 99.51 yen, off a four-year high of 99.88 yen. Traders said substantial options expiries due later in the day between 98 and 99.50 yen could keep the dollar pinned lower for now. Commerzbank's Leuchtmann said it was possible that the dollar could rise to 115 yen or higher by the end of the year, but said it was difficult to predict the extent of the move.
Japan's aggressive monetary easing contrasts with expectations the Federal Reserve may slow its bond-buying later this year. These expectations were given a boost as Fed minutes on Wednesday showed a few policymakers looking to taper asset purchases by mid-year. However, analysts said investors may reassess this as the minutes did not reflect a dismal March payrolls report which was released after the meeting.
Traders cited hefty offers to sell dollars at 100 yen from Japanese exporters. However, they added most investors were looking to use dips to add to long dollar positions. A rise above 100 yen would take the US currency to highs not seen since mid-April 2009 and pave the way for a test of the April 2009 peak of 101.45 yen.
The euro rose to its highest in more than three years against the yen at 130.82 yen. It also gained 0.5 percent on the day to reach $1.3136, its strongest since late February. Speculation was growing that the BoJ's ultra-loose policy would drive Japanese investors to riskier and higher-yielding foreign assets, with the euro one of the beneficiaries. So far, there was little evidence of that happening, however. Data from Japan's Ministry of Finance showed Japanese investors sold a net 1.145 trillion yen ($11.5 billion) worth of foreign bonds last week, the highest sales in a year. The Australian dollar rose to a five-and-a-half year high of 105.39 yen while the New Zealand dollar hit 86.43 yen, its strongest since early 2008.