LONDON (AFX) - The yen continued weaker in early trade, affected by Japanese funds seeking off-shore assets amid signs that the Japanese government will espouse a hands-off policy while the ailing currency weakens, dealers said.
"Japanese investors were first off the mark selling the yen, with both equity and bond funds going for off-shore assets," Paul Bednarczyk, economist at 4CAST, said.
He also noted any repatriation of profits will end after March, paving the way for continued yen weakness.
Bednarczyk sees the yen hitting 130 to the dollar in the very near future, after the dollar shot past its 1999 high of 124.75 yen overnight to hit levels just above 125 yen.
Investors do not expect the Bank of Japan to intervene to shore up the yen, especially amid reports that the U.S. government discussed a weak yen policy before the March 19 U.S.-Japan summit meeting. The remarks from Taro Aso, state minister for economic and fiscal policy, dented the yen in Asian trading and led to more yen selling elsewhere.
The euro continued under pressure after the European Central Bank's decided to hold interest rates yet again, despite signs that the slowdown in the U.S. is starting to affect euro zone growth.
The ECB's preoccupation with inflation continues, although the market has shifted its focus to growth prospects, Bednarczyk said. "They missed the opportunity to act pro-actively," he said, adding that ECB intervention to prop up the euro is unlikely at this juncture.
If the bank is going to cut rates by 50 basis points at its next meeting, any intervention now will appear to be 'short termist,' he said.
Sterling was weaker in line with the euro. Still ahead is next week's Monetary Policy Committee meeting, where many expect another 25 basis point reduction in U.K. interest rates.