Dollar dives as global growth fears fester
By Dion Rabouin
NEW YORK (Reuters) - The dollar fell to a 15-month low against the yen on Thursday, on track for its worst week against the Japanese currency since 2008, as fears of a global economic slowdown and concerns about stress in the banking system increased demand for safe havens.
The dollar fell as much as 2 percent against the yen JPY=, touching a low of 110.98 yen. It recovered modestly in afternoon trading and was down 1 percent at 112.18.
A slump in major stock markets and a jump in bond prices this week has forced traders out of risky positions, leading to the unwinding of the carry trade and repayment of cheap yen funds.
Traders use the yen to fund trades of riskier assets. When markets sour and traders become risk averse, they unwind those trades and buy back the currency.
Recent global market turmoil has prompted large-scale yen buying even though Japan recently lowered its interest rates below zero, which theoretically should reduce the yen's value.
Doubts about the effectiveness of the Bank Of Japan's rate policy has prompted traders to ignore traditional fundamentals and pack into the Japanese currency.
"What the market is telling you with the price action in dollar/yen since the Bank of Japan moved to negative rates is that it doesn't think that the BOJ's policy is sustainable or going to be effective," said Ian Gordon, FX strategist Bank of America-Merrill Lynch in New York.
"That's why you've seen the yen strengthen back so much...the market is basically saying we don't think this policy is going to work." Continued...