* Dollar falls against yen after slide in equities
* Japanese data on capital flows also support yen
* Markets waver on Fed QE tapering view
By Anooja Debnath
LONDON, May 30 The dollar fell against yen on
Thursday after a slide in equities pushed market participants to
opt for the safety of the yen and unwind their bets for a
Japanese shares tumbled, losing more than 5 percent
on the day, while European stocks lost nearly 2 percent
on Wednesday and this helped support currencies like the yen and
Swiss franc which benefit in times of financial uncertainty.
The dollar was down 0.5 percent on the day against
the yen at 100.68, having hit an intra-day low of 100.46, which
was its lowest since May 9.
Traders cited Japanese bids around 100.50 yen and reported
large option expiries at 100 yen which could keep the currency
pinned to that level.
"We are seeing today a natural and healthy correction in
perhaps overbought equity and currency markets and that is
having a knock-on impact on the dollar in general, it is weaker
against a broad range of currencies," said Paul Robson, currency
strategist at RBS.
The dollar index dropped 0.3 percent to 83.431 on
Thursday, pulling away from a 3-year high of 84.498 hit on May
Robson said the dollar's uptrend against the yen was still
intact and forecasts the U.S. currency at 110 yen by year-end.
Strategists said the yen was also impacted because when
foreign investors buy Japanese equities they hedge this
investment by buying dollars against the yen. When the Nikkei
falls they have to sell dollar/yen in order to unwind those
"It may seem illogical (for the forex market to follow the
Nikkei), but a weaker yen led to optimism for stocks before, so
right now the Nikkei's retreat has initiated a fall in the
dollar-yen too," said Masashi Murata, senior currency strategist
at Brown Brothers Harriman in Tokyo.
Some market participants had expected the Bank of Japan's
aggressive easing would pressure Japanese bond yields and send
Japanese investors in search of higher yields abroad.
Finance ministry data on Thursday, however, showed they sold
1.117 trillion yen ($11.1 billion) worth of foreign bonds last
week, the second straight week of net selling, as they resumed
the repatriation of overseas investments, which is yen-positive.
"The flows data just gave people another reason to lighten
up on their long speculative dollar/yen positions... perhaps
people are just concerned the outflows from Japan aren't coming
as quickly as they had hoped," RBS' Robson said.
The dollar had slipped 1.3 percent on Wednesday against the
yen, its largest daily loss in a month, after U.S. Treasury
yields toppled from a 13-month high on doubts on
whether the U.S. Federal Reserve will wind down its stimulus.
Fed chief Ben Bernanke said last week that a decision on
whether to scale back the central bank's current $85
billion-a-month in asset purchases could come at one of the
Fed's "next few meetings" depending on economic data.
But most strategists expect rising prospects of QE tapering
to lift Treasury yields and bolster the greenback in coming
Against a weaker dollar, the euro was up 0.2 percent at
$1.2960. Business and consumer sentiment data at 0900
GMT will provide hints as to whether the European Central Bank
will cut rates.