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Tokyo - The Japanese yen held near a four-month high against the dollar in Tokyo trade Wednesday while the euro took a breather from sharp falls triggered by the eurozone debt crisis.
The yen eased to ¥79.48 to the dollar in Tokyo from ¥79.27 in New York on Tuesday, but was sharply higher than ¥80.28 Tuesday as investors fled to the safer currency amid a deepening crisis in Europe spreading to Spain and Italy.
The euro remained volatile, fluctuating near the $1.40 mark. In Tokyo trade it bought $1.3991 and ¥111.27 in mid-afternoon trading, firming from $1.3974 and ¥110.69 in New York.
The single currency tumbled on Tuesday after eurozone officials failed to come up with a second bailout plan for Greece and investors turned their attention to Italy’s debt problems, sending its borrowing costs soaring.
But risk-appetite stabilised "with reports the ECB was buying Spanish and Italian government bonds and the press suggesting Europe will need to issue joint bonds to end the sovereign debt crisis," noted John Kyriakopoulos at National Australia Bank.
The Japanese unit remained near its highest level since reaching a post-war high of ¥76.25 against the greenback in the aftermath of the March 11 earthquake and tsunami, which prompted a joint Group of Seven currency intervention.
Japanese Finance Minister Yoshihiko Noda called the yen's move "one-sided" without indicating any plan to intervene in the market to drive down the yen.
Tokyo-based traders believe the Ministry of Finance could intervene in the market to prop up the dollar if the US unit falls below ¥77.
The euro continued to be buffeted by eurozone debt worries, with the latest blow to the single currency coming from Tuesday's move by Moody's Investors Service to cut Ireland's credit rating to junk status.
Europe's woes have dominated investor attention globally amid fears debt contagion could spread to Italy and Spain, respectively the eurozone's third and fourth-biggest economies, and trigger a cascading crisis in world markets.
Stocks have tumbled while Spain and Italy have seen borrowing costs soar amid pressure on EU leaders to take swift action.
But in Tokyo trade, the single unit regained ground on short-covering, traders said, with many awaiting the outcome of stress tests on the eurozone banking sector.
"Investor sentiment faces a number of key trials ahead, including conclusions from ongoing euro area policy discussions and the announcement of results from European bank stress test this Friday," Barclays Capital said in a note to clients.
"Volatility is likely to remain elevated across different asset classes with the aforementioned uncertainties hanging heaviest over European markets," it added.
China said its economy grew 9.5% year-on-year in the second quarter, above the market's expectations of 9.4% but slower than 9.7% expansion seen in the first quarter.
The dollar was weaker against other Asian currencies, falling to Sg$1.2247 from Sg$1.2286 on Tuesday, to 1 061.95 South Korean won from 1 066.28 and to Tw$28.88 from Tw$28.91.
The unit also fell to 43.09 Philippine pesos from 43.13 and to 30.26 Thai baht from 30.43 but rose to 8 558.75 Indonesian rupiah from 8 551.75.
