LONDON (AFX) - The yen was weaker across the board in early trade, falling through key levels as the Nikkei index continued to spiral downwards amid signs that foreign funds are leaving Japanese shores, dealers said.
Political and economic concerns are plaguing the Japanese stock market and currency, with prime minister Yoshiro Mori facing another vote of no-confidence while deflationary pressure continues to build, they said.
The major beneficiaries from the yen selling are sterling and the euro, said Will Rugg, economist at Standard & Poor's MMS. "Foreign investors seem to be bailing out. According to the Tokyo Stock Exchange, foreign funds were net sellers on the Nikkei for the first time in weeks," he said.
With the Nikkei index approaching the 12,000 points - a level not seen since April 1985, yen selling appears to have accelerated, Rugg added.
Rugg discounted the possibility of Bank of Japan intervention to shore up the yen at this point, saying that the "usual rhetoric" is only likely to change as the yen slips to 120 against the dollar. Pressure on the yen increased further as a sharp drop in the Tokyo February consumer prices index raised further worries about deflation, Micheal Klawitter at West LB said.
"Apart from the normal argument of capital repatriation ahead of March 31, the steady level of option volatility also argues against a major immediate sell-off," he said.
The dollar also gained on the yen but to a smaller extent, given the U.S. economy's own problems. Both sterling and the euro in turn strengthened against the dollar.
But sterling also received a minor boost from domestic developments, economists said.
"Risks of a rate cut by the Bank of England next week have increased following the drop in the Nationwide House price Survey. A rate cut should support sterling against the euro as such a move would support UK growth," West LB's Klawitter said.