TOKYO, Jan 27 (Reuters) - The dollar slipped to a seven-week low against the yen on Monday as a sell-off in emerging market currencies late last week prompted investors to seek shelter in the safe-haven Japanese currency.
The dollar fell as low as 101.77 yen, its lowest level since early December and last stood at 102.04 yen, down 0.3 percent from late U.S. levels last week. It has fallen 2.4 percent in the past three sessions.
Currencies from Turkey to Argentine were dumped last week, making investors nervous that the shakeout in markets could lead to a full-blown financial crisis.
Some of the selling in emerging markets also had its roots in domestic factors. In Turkey, political concerns had a negative impact on markets, while Argentina abandoned support of its peso on the open market last week, sending the currency skidding to its biggest drop since the 2002 financial crisis. .
However, an underlying concern was that tighter U.S. monetary policy could encourage a shift of funds back to the United States from emerging markets that had enjoyed a flood of cheap money from the Federal Reserve’s money printing program, known as quantitative easing.
In addition, tightening credit conditions in China as the government seeks to curb growth in high-risk lending heightened fears about a possible slowdown in Asia’s economic powerhouse.
“Market positioning also likely played a role in the volatile price action. For some currencies, positioning has become slightly stretched, particularly in the yen,” Barclays analysts said in a note to clients.
“In a context of market liquidation of the magnitude we witnessed on Friday, it is logical that some of the previously strong performing trades were unwound,” they said.
Indeed, data from U.S. financial watchdog showed speculators net selling in yen futures traded in Chicago remained high. As of last Tuesday, net yen short positions stood at 114,961 contracts, near a 6 1/2-year high of 143,822 contracts set late December.
Investors had sold the yen heavily on the notion that a cocktail of a solid global recovery and Japan’s hyper-easy monetary policy will spur yen-carry trades -- borrowing the yen and converting it to higher yielding currencies, many of them in emerging markets.
The Swiss franc, another safe-haven currency, also held firm, trading near one-month highs against the euro, which traded 1.2234 franc, near Friday’s low of 1.2227.
Against the dollar, the Swiss currency stood at 0.8941 per dollar, having hit one-month high of 0.8904.
The euro moved little against the dollar at $1.3685, having risen to a three-week high of $1.3740 on Friday.