The yen hit a 2 1/2-year low against the dollar and a 21-month low versus the euro on Friday, as the market continued to focus on Japan’s pursuit of reflationary economic policies.
Stop-loss dollar buying added to the yen’s losses, traders said. The greenback climbed to its strongest level since June 2010 of 90.695 yen on trading platform EBS, a gain of 14 percent versus the yen compared with levels seen in mid-November.
The dollar last fetched 90.46 yen, up 0.1 percent from late U.S. trade on Thursday.
There was talk of an option barrier at 90.75 yen, suggesting that options players might sell the dollar if it rises close to that level. A breach of that level, however, could open the way for the dollar to rise further.
The yen had bounced earlier in the week after the Bank of Japan on Tuesday doubled its inflation target to 2 percent and made an open-ended commitment to buying assets from next year.
Although it was the BOJ’s boldest policy attempt yet to end years of economic stagnation, the action was deemed a disappointment by some due to the lack of an immediate expansion of asset purchases.
The yen came under renewed pressure after reports on Thursday quoted Japan’s deputy economy minister, Yasutoshi Nishimura, as saying the yen’s decline is not over, and that a dollar/yen level of 100 would not be a concern. Nishimura was also quoted as saying that the dollar would only add to domestic import costs if it rose to around 110-120 yen.
“Every time dollar/yen has a correction, it seems that one or other Japanese official comes out and talks the (Japanese) currency down,” said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore.
“Undoubtedly, there is a campaign on the part of the Japanese authorities to continue to focus the market’s attention on the need to reflate the economy,” he added.
The euro rose to as high as 121.32 yen, its highest level versus the Japanese currency since April 2011. The euro last stood at 120.82 yen, steady from late U.S. trade.
Against the dollar, the euro slipped 0.1 percent to $1.3354 (8466 pence).
MORE BOJ EASING EYED
The yen got no help from data showing that Japan remains entrenched in deflation, keeping pressure on the BOJ to take more steps to meet its inflation target.
Japan’s core consumer prices fell 0.2 percent in December from a year earlier, down for a second straight month, and a far cry from the central bank’s new price goal.
“The BOJ should continue to ease aggressively under political pressure,” said Masashi Murata, a currency strategist at Brown Brothers Harriman in Tokyo.
At the same time, the government of Japanese Prime Minister Shinzo Abe continues to push for a weaker currency.
“Under these expectations, the market could have kind of a safety mode to sell more yen,” Murata said.
The Japanese price data was less significant for currency markets than Thursday’s U.S. economic data, which contributed to the yen’s weaker tone in Asian trading, he said.
A report showing that new claims for jobless benefits fell to a five-year low last week lifted U.S. bond yields, which in turn helped lift the dollar against the yen.
The yen’s precipitous descent since late last year has not escaped the attention of the global community, with German Chancellor Angela Merkel singling out Japan on Thursday as a source of concern.
“I don’t want to say that I look towards Japan completely without concern at the moment,” Merkel said at the World Economic Forum in Davos, when asked whether currency manipulation risked distorting competition.
Japanese Finance Minister Taro Aso, shrugging off concern from overseas about currency wars, said on Friday that the BOJ’s monetary easing is aimed at pulling the country out of deflation but not at manipulating currencies.