TOKYO (AFX-ASIA) - The yen was sharply lower in midafternoon trading, hit by active option-linked selling after the currency failed to protect the 125.00 yen level, dealers said.
Initially, selling by importers and speculators pushed the Japanese currency lower, with technically-driven selling then fueling additional downside momentum after no clear support was seen at the psychologically important 125 yen level, they said.
The renewed downturn of the yen against the euro also supported the fall of the Japanese currency against the dollar after Japan Federation of Employers' Associations chairman Hiroshi Okuda said that the euro should rise to around 110 yen, dealers said.
Finance Minister Masajuro Shiokawa said yesterday that he agreed with comments by Okuda.
But Nikko Trust and Banking Co Ltd treasury department assistant general manager Yasuji Yamanaka said the yen may not extend its losses sharply beyond the 125 yen level.
"A rocky road is waiting for the dollar anywhere above the 125 yen level, and towards the 126 yen level in particular," he said. "There seem to be a large number of investors who are willing to sell the dollar above the 125 yen level, including not only Japanese exporters but also US funds."
Dealers said if the dollar fails to finish the Asian session above the 125 yen level, it may move back towards 124 yen, or lower on a technical correction.
"In addition, some wait-and-see mood will emerge and cap losses of the yen prior to the release Friday of US non-farm payroll data and the G-7 summit meeting later this month," Yamanaka said.
Dealers said concerns over growing criticism of a weak yen policy by Asian countries will also support the sharp downside of the yen. South Korea's Finance and Economy Minister Jin Nyum said yesterday a weaker yen policy will negatively affect not only the Asian economy but also the global economy as a whole.
"Given growing references to a weak yen, Japanese authorities have almost no chance of pursuing a weak yen policy, at least openly," Yamanaka said.
The euro was higher against the yen, but was lower against the dollar due to receding expectations that the European Central Bank will cut interest rates at today's central council meeting, dealers said. "But, unless fresh leads emerge, it may be difficult to push the currency further lower from present levels," Yamanaka said.