The euro rose to a new all-time high against the yen yesterday in Asia as sentiments continued to weaken on the Japanese currency amid waning hopes that the nation would drop its zero interest-rate policy in the near future.
The euro rose as high as ¥142.74 before it dipped on profit-taking by interbank dealers and other short-term-focused investors, traders said.
Both the euro and the US dollar are benefiting from higher US and European interest rates compared to the near-zero rates in Japan.
Investors also continued to buy the US dollar, which rose as high as ¥121.09 temporarily, on growing optimism about the greenback ahead of next week's US Federal Open Market Committee meeting, traders said.
By midafternoon in Tokyo, the US dollar was trading at ¥120.96, up ¥0.15 from late Monday in New York. On Monday, it rose to a 32-month high of ¥121.40.
"Prospects are still bright for the dollar," said Satoru Ogasawara, currency analyst at Credit Suisse First Boston in Tokyo.
The fact that the G7 ministers showed little concern about the yen's recent decline in their weekend meeting in London has also given currency players confidence to keep offloading yen for US dollars, Ogasawara said.
But demand from Japanese exporters and US hedge funds for yen to settle accounts before they enter the holiday season may put a lid on the US dollar's gains, dealers said.
"Since this is the last week for such flows, players will be eager to take profits," if the US dollar rises toward ¥121.50, said Reiji Omizawa, director of forex and commodities at Deutsche Securities in Tokyo.
The US dollar, meanwhile, hardly moved against the euro in Tokyo, due to a lack of fresh cues to trade on, with the euro rising to US$1.1793 from US$1.1787 late Monday in New York.
The US dollar was mixed against other regional currencies, slipping to 46.160 Indian rupee from 46.265 the previous day, and to 9,915 Indonesia rupiah from 9,960, while edging up to 53.955 Philippine peso from 53.90.
Although Japanese central bank officials have said that interest rates may rise sometime, expectations are low for the move to come in the next few months.
Japan has maintained zero interest rates for several years to spur a recovery after the economy fell into stagnation during the 1990s.