Yen strikes four month dollar high in volatile trade

March 14, 2011
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, LONDON, Mar 14 – The yen briefly hit a four-month dollar high on Monday in the wake of Japan\’s devastating natural disasters, before sliding as the nation\’s central bank announced a record liquidity injection.

In overnight Asian trade, the dollar tumbled as low as 80.62 yen, which was a level last seen on November 9.

However, the greenback then rebounded as high as 82.45 after the the Bank of Japan announced a huge liquidity injection in a bid to stabilize markets. It stood at 81.93 yen in late morning London deals.

Elsewhere on Monday, the European single currency rose to $1.3971 from $1.3901 in New York late Friday, boosted by a two-day eurozone summit that concluded over the weekend.

And Tokyo stocks tumbled on Monday, as the central bank pumped a record amount of cash in a bid to soothe money markets shaken by Japan\’s biggest ever earthquake, a devastating tsunami and a nuclear emergency.

The yen had fallen sharply after Friday\’s quake, before being bought heavily on the expectation of future yen demand from firms for the massive rebuilding task ahead for the devastated country.

"The initial positive yen reaction likely reflects both a pick-up in safe-haven demand for the yen as broader market risk sentiment has deteriorated, and investors anticipating a pick up in quake-related yen supportive capital inflows," said economist Lee Hardman at The Bank of Tokyo-Mitsubishi UFJ in London.

The Bank of Japan (BoJ) said it would pump a record 15 trillion yen ($184 billion) to help stabilise the short term-money market, making good on its pledge Sunday that it would unleash "massive" funds following the quake.

An additional 6.8 trillion yen will be deployed Tuesday and Wednesday, including 3 trillion in bond purchases, bringing the total available to 21.8 trillion yen.

"Yen strength was curtailed earlier today after the BoJ stepped in to provide a record amount of liquidity to prevent risk aversion from weighing on Japanese assets," added analyst Kathleen Brooks at Forex.com.

"The market cannot make up its mind if it will trade the yen on the back of further BOJ stimulus (weaker yen) or as a safe haven (stronger yen), so expect lots of volatility," she warned.

Elsewhere, eurozone leaders on Saturday agreed to boost defences against a destabilising debt crisis stalking weaker members by strengthening a debt rescue fund and increasing economic policy coordination.

European Council President Herman van Rompuy said the agreements, to be finalised at a full EU summit March 24-25, "should allow us to finally turn the corner" on a crisis that has tested the whole euro project to breaking point.

In London trading on Monday, the euro changed hands at $1.3971 against $1.3901 in New York late Friday, at 114.47 yen (113.89), £0.8672 (0.8645) and 1.2962 Swiss francs (1.2925).

The dollar stood at 81.93 yen (81.91) and 0.9278 Swiss francs (0.9294).

The pound was at $1.6110 (1.6076).

On the London Bullion Market, the price of gold rose to $1,423.20 an ounce from $1,411.50 late Friday.

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