By Hideyuki Sano
TOKYO, May 24 (Reuters) - 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.