* Euro skids across the board in initial Cyprus reaction
* Yen gaps higher as speculators caught short, USD follows
* Focus on Cyprus parliament vote, peripheral bond yields
By Wayne Cole
SYDNEY, March 18 The euro skidded lower in Asia
early on Monday as surprise news that Cyprus would have to tax
depositors as part of a bailout plan was taken as setting a
dangerous precedent that at worst could ultimately risk bank
runs elsewhere in the region.
The single currency was changing hands at $1.2907
, down from $1.3054 late in New York on Friday. It
sank against the yen to 122.27 yen, from around
124.54. And it fell on the Swiss franc to 1.2185 francs, from
The yen shot higher across the board as speculative sellers
were caught badly short of the currency. Borrowing in yen to buy
higher yielding assets has been a heavily favoured trade in
recent weeks on the expectation of more aggressive easing from
the Bank of Japan.
Even the U.S. dollar fell back to 94.76 yen, from
95.38 late on Friday. The Australian dollar lost almost two full
yen in whippy early trading before steadying at 97.97
. The U.S. dollar was up 0.6 percent against a basket
of currencies to reach 82.736.
"The week was off to a chaotic start on the Asia open this
morning after Saturday's Eurogroup announcement on Cyprus'
bailout deal," said analysts at JPMorgan.
"The fear will be that haircutting depositors in the Euro
area renews deposit flight from peripheral banks."
Euro zone leaders and Cyprus agreed on Saturday that
depositors should be taxed up to 10 percent - 6.7 percent on
amounts below 100,000 euros and 9.9 percent on figures above
that - to raise 5.8 billion euros so the island country could be
eligible for an international bailout.
Taxing depositors would be a major change from usual
practice and could give depositors in other debt-ridden
countries an incentive to shift their money to EU banks that
would not be at risk, such as in Germany.
The news triggered a run on automatic cash machines in
Cyprus on the weekend, depleting them within hours while it was
unclear whether banks would open for business on Tuesday after a
Monday bank holiday.
There was also a risk the Cyprus parliament would reject
the tax proposal in a vote due on Monday. A source close to the
consultations said Cyprus was in talks with international
lenders on Sunday to possibly change the size of proposed levy's
on bank deposits.
Cyprus was discussing with lenders the possibility of
changing the levy to 3.0 percent for deposits below 100,000
euros, and to 12.5 percent for those above that, the source
"The news on Cyprus may well elicit some negative euro
reaction on the back of fears of capital flight from peripheral
Europe, although if managed properly, it shouldn't spark the
start of a contagious bank run," said Brian Martin, a senior
strategist at ANZ in London.
"We do not think this will cause a sustained run on bank
deposits in the euro area, as Cyprus appears a special case."
Still, for the moment he recommended selling the euro
against the Swiss franc, yen and sterling, and selling bonds
from EU periphery countries.
He noted one early sign that the Cyprus deal was causing
contagion would be a widening in peripheral bond spreads.