By Hideyuki Sano
TOKYO May 24 The dollar recovered from two-week
lows against the yen on Friday as a safety-bid for the Japanese
currency ebbed after the Nikkei share average rebounded from the
previous day's 7.3-percent plunge and Wall Street regained some
stability by the close.
Global stocks and commodities markets sold off on Thursday,
led by Japanese stocks suffering their worst one-day loss in
two years, as investors were spooked by weak Chinese factory
activity data and the prospect of an earlier-than-expected
roll-back of U.S. stimulus.
"Adjustments are important part of the market. You can't
have a one-way move forever. So yesterday's big adjustment was
necessary, I think. But if the Nikkei rebounds, it will become
easier to buy the dollar," said Bart Wakabayashi, head of forex
at State Street Global Markets.
The Nikkei rose 1.5 percent in early Friday trade.
Overnight on Wall Street, U.S. stocks slipped but finished
sharply off their session lows.
The dollar tacked on 0.4 percent in early Asian trade on
Friday to 102.40 yen, rebounding sharply after having
fallen to a two-week low of 100.83 yen on Thursday. It wasn't
far off a 4 1/2-year high of 103.74 yen hit earlier this week.
The yen has dropped sharply this year and the Nikkei has
surged around 45 percent on the back of Japanese Prime Minister
Shinzo Abe's prescription of aggressive monetary and fiscal
stimulus. On Thursday, the rapid escalation in risk-aversion in
global markets drove investors to the safe-haven yen, providing
a brief boost to yen-bulls.
Given the high correlation between the Nikkei and the
dollar/yen since late last year, the U.S. currency is likely to
take cues from Japanese shares in the near term, analysts said.
Junya Tanase, chief currency strategist at JPMorgan Chase,
said the dollar fell about three percent on average in four
instances during the bull market of 2003-2007 when Japanese
shares declined more than four percent.
"Based on that average, the Nikkei could need about 20
sessions to recover the losses and the dollar/yen could fall
around three percent during that process," Tanase said.
"But even if the adjustment phase drags on, the dollar/yen
is unlikely to fall much beyond 100 yen," he added.
Analysts also note that the dollar is generally being
supported by expectations that the U.S. Federal Reserve is
inching towards tapering its bond buying after Chairman Ben
Bernanke on Wednesday suggested this could happen in one of the
next few policy meetings.
The euro eased 0.2 percent to $1.2909.
The growing view that the Fed will take the foot off the
bond-buying scheme is hurting the Australian dollar, which has
been a magnet for funds looking for higher yields.
The Aussie fell 0.7 percent to $0.9667, edging
closer to a one-year low of $0.9593 hit on Thursday.
The Australian unit was also pressured by China's factory
activity for May, which shrank for the first time in seven
months, deepening fears that the recovery in the world's
second-largest economy has stalled.