Tokyo: The yen held gains against the dollar and euro on Tuesday, 20 Nobember, and climbed against high yielders after more trouble in the US subprime mortgage and credit markets kept investors cautious about risky carry trades.
The dollar hovered near an 18-month low against the Japanese currency, after Goldman Sachs on Monday downgraded Citigroup’s stock to “sell” from neutral", and forecast more write-downs by the largest US bank because of mortgage losses.
A 1.9% fall in the Nikkei stocks average to a 16-month low, after US equities hit their weakest levels in three months on Monday, also supported the yen as investors used stock movements as a barometer of risk appetite.
The downgrade of Citigroup, which Goldman said may have to write off $15 billion over the next two quarters, underlined the ongoing credit problems that are reverberating through the financial world, threatening to affect the broader U.S. economy and keeping intact speculation of lower U.S. interest rates.
“The yen strength trend is continuing,” said Hideki Amikura, forex manager at Nomura Trust and Banking, citing the Citigroup downgrade as a big factor in the latest bout of yen buying.
“We’re going to need some new factors to turn this trend around,” he added.
The dollar was little changed at 109.75 yen after slipping as low as around 109.60 yen in early Tokyo trade and inching closer to the 109.12 yen level hit last week for the first time since May last year.
Market participants say the yen is poised for more gains in the near term, with some saying that a push below the 109 yen region may trigger dollar selling to as low as around 105 yen.
The dollar traded at 1.1165 Swiss francs, after edging down to a 12-year low of 1.1145, according to electronic trading platform EBS. A fall under 1.1100 would mark a record low.
The single European currency was down 0.15% at 160.65 yen, pulling away from the day’s high around 161.30 yen as Nikkei losses deepened throughout the morning session.
Traders said this helped to push the euro down from the day’s high around $1.4673 to a session low around $1.4635, around 0.2 percent lower on the day.
Still, the euro hovered in range of the record high of $1.4753 touched earlier in the month.
High-yielding currencies like the Australian and New Zealand dollars extended losses, slipping to one-week lows against the U.S. currency and the yen.
The Aussie fell 0.8% to $0.8865 while sliding 0.9% to 96.10 yen The New Zealand currency at one point was down roughly 0.5% against the dollar and the yen.
With few major economic events and data releases slated in Asia on Tuesday, investors awaited data on US home construction starts due at 1330 GMT.
Housing starts are forecast to show an annual pace of 1.170 million units for October, down from September and reflecting continued weakness in the US housing market as tighter lending standards and lower home prices keep activity at bay.
In addition, the Federal Reserve will release the minutes of its October policy meeting when it cut rates 25 basis points to 4.5%, having slashed them 50 basis points in September.
The Fed will disclose updated forecasts from policymakers. In the past, such forecasts were announced twice a year, but the Fed will begin releasing them quarterly and in an expanded format that will provide more details on its outlook.
Many in the market expect more Fed rate cuts, although recent comments from several policymakers have hinted the central bank sees no need for further easing yet.