NEW YORK The yen rose from recent multiyear lows against the dollar and euro on Monday as renewed worries about the global economy spurred traders to sell riskier investments funded by the relatively cheap Japanese currency.
Commodity-linked currencies, such as the Australian and New Zealand dollars, fell sharply against the U.S. currency, as gold prices plunged below $1,400 an ounce to a more than two-year low. Prices for other precious metal were dragged lower as a result of gold's slide.
China's economic recovery stumbled unexpectedly in the first three months of 2013, data showed on Monday, leading to declines in agricultural commodities prices. Disappointing manufacturing growth in New York state as well as U.S. homebuilder sentiment added to concern the global economy may be losing momentum.
Marc Chandler, global head of foreign exchange strategy at Brown Brothers Harriman, said there is likely disappointment in the market that Japanese investors were large sellers - not buyers - of foreign bonds in the first full week of the new fiscal year.
"People who might have tried to pick a bottom in dollar/yen here this morning are having very low satisfaction," Chandler said in a telephone interview.
"Second, I think the (U.S.) stock market is selling off. The third thing is positioning. They were short yen, long everything else - long gold, long emerging markets, long U.S. Treasuries. As they get out of the yen leg of it, they are being forced to get out of the long-leg of these trades as well," he added.
The dollar traded 1.86 percent lower at 96.55 yen in late New York trade, having earlier dropped as low as 97.07 yen, according to Reuters data. It has retreated from a four-year high of 99.94 yen on Thursday, and hefty resistance is expected at 100 yen.
The euro fell 2.5 percent to 125.78 yen, its lowest level in a week and down for a second straight session. Last week, the euro touched 131.11 yen, its strongest since January 2010.
The yen has been a favorite funding currency in so-called carry trades, when investors borrow yen at near zero interest rates and then reinvest the money in currencies and assets with higher returns. When stress in financial markets rises, investors tend to unwind those trades and buy back the Japanese currency.
Investors also refrained from selling the yen ahead of a Group of 20 meeting in Washington. Fears members may discuss yen weakness grew after the United States said it would watch Japan's policies to ensure Tokyo was not devaluing the yen to gain competitive advantage for its exports.
The G20 meeting begins on Thursday and investors were wary other countries may complain about, or seek to stem, the yen's rapid decline that accelerated after the BOJ unveiled radical easing steps on April 4.
"The statement on Friday from the U.S. Treasury comes back to the theme of currency wars," said Jane Foley, senior currency strategist at Rabobank. "There's the risk of political resistance to a significant fall in the yen," he added.
The dollar briefly extended its decline against the yen after data showed the pace of growth in manufacturing in New York state slowed more than expected in April while overseas investors were large sellers of long-dated U.S. government securities in February.
The Australian dollar's losses extended to a one-month low of $1.0291 as gold tumbled and worries about China's economy, Australia's biggest export market. It was last at $1.0294, down 2.01 percent on the day, the worst percentage loss in a single session since November 9, 2011
The New Zealand dollar lost 2.39 percent to $0.8383, a one-week low.
Reports of explosions near the finish line of the Boston Marathon were seen contributing to some of the late afternoon reflexive selling in the Aussie and Kiwi dollars to fresh session lows.
Chris Turner, head of currency strategist at ING, said the drop in gold prices was likely to lead to more market volatility and further unwinding of long positions in riskier assets and currencies, which will benefit more liquid currencies like the yen and the dollar.
The euro was down 0.63 percent to $1.3028, off Thursday's one-month high of $1.3138. The euro zone common currency has seen resilient demand despite signs of renewed tension in the 17-member area following a bailout for Cyprus and on political uncertainty in Italy.
Rabobank's Foley said the euro was benefiting from a run of lackluster U.S. data that was limiting demand for the dollar.
"There are a lot of things to worry about in Europe but there's a lot of good news already priced into the dollar, and the data has been disappointing," she said.