The US dollar tumbled to a seven-month low against the yen in Asian trading yesterday, extending losses that were triggered by last month's G7 meeting, where finance officials warned about the bulging US trade deficit and China's currency controls.
The US dollar was trading at ¥111.62 in Tokyo by midafternoon, down ¥0.81 from late Friday in New York, and the lowest since it reached ¥111.01 on Sept. 23. Yesterday's drop added to a 1.2 percent decline on Friday. The euro rose to US$1.2740 from US$1.2735 yesterday in Tokyo.
The dollar has fallen from above ¥117 since G7 finance officials issued a statement during their April 21 to April 23 meeting calling for flexible exchange rates, signaling to China they want a stronger yuan. That prompted traders to buy the yen due to Japan's close trade ties and geographical proximity to China.
G7 officials also expressed concern about the ballooning US trade deficit, which leaves US dollars in the hands of exporters and has put pressure on the US dollar for years.
Adding to bearish sentiments for the dollar were US employment figures released on Friday that showed a slowdown in hiring, said Kikuko Takeda, currency strategist at Bank of Tokyo-Mitsubishi UFJ in Tokyo.
Takeda said the US dollar's fall isn't likely to last beyond a few weeks because the factors behind the dive aren't particularly new.
"The reaction is a bit exaggerated now from G7 shock," she said, adding that the dollar is likely to stabilize at about ¥110.
Speculation has been growing that the US Federal Reserve, which has been raising interest rates lately, will stop doing so soon. The weak US employment data has fueled such speculation.
A stronger yen hurts Japan's exporters by making their products more expensive overseas and eroding the value of overseas earnings when converted back to yen. Pressures for a lower yen tend to also push down other regional currencies.
The US dollar was also lower against other regional currencies, hitting an eight-and-a-half-year low against the Singapore dollar, falling as much as to S$1.5651 from S$1.5689 the previous session, to NT$31.38 in Taiwan, the lowest level in 11 months, and to 929.3 South Korean won, the lowest level in eight years, from 939.6.
The US dollar also dropped to a new eight-year low of 3.5960 Malaysia's ringgit, and to a two-year low of 8,735 Indonesia's rupiah, traders said.
Remarks made last week by Timothy Adams, US Treasury undersecretary for international affairs, also encouraged dollar-selling, traders said.
The remarks were seen as showing that Washington is raising pressure on Japan and other Asian nations to let their currencies strengthen in order to curb protectionist sentiment at home and reduce the huge US trade deficit.
According to media reports, Adams told reporters at the Asian Development Bank's meeting in India that countries should refrain from intervening in the currency markets as well as commenting on exchange rates.
"Various dollar-bearish materials came out at the same time and produced some synergetic effect," said Hidenori Kato, head of spot foreign-exchange department at Societe Generale's Tokyo branch.