The US dollar fell to its lowest level against the yen in 28 months yesterday as a continued rise in Japanese government bond yields and persistent concerns over the Brazilian economy conspired to push the dollar lower.
In busy early trading, the dollar dived to 108.58 yen, more than 2 per cent lower than its close of 110.85 yen in New York on Friday and 5 per cent down on its level just one week ago.
Dealers said the yen's strength was fuelled by large volumes of repatriation by Japanese investors out of foreign assets into yen-denominated holdings to take advantage of rising bond yields in Japan.
Yesterday, the yield of the key No 203 10-year bond was 1.75 per cent, representing more than a tripling of yields in the past three months.
At the same time, concerns over Brazil continued to escalate, following revelations by the country's third-largest state, Minas Gerais, that it was implementing a 90-day moratorium on 18 billion reais (about HK$2.81 billion) of debt owed to the central government.
Traders were becoming increasingly concerned that if the yen continued to rise at the current pace against the dollar, the Japanese authorities might intervene in the market.
They said the next key level was 105 yen, and technical analysts warned a breach of 108 yen would trigger a flurry of stop-loss orders that would quickly push the yen up towards that point.
