Yen stumbles after Fed cut boosts Asian stocks

TOKYO: The yen stumbled on Wednesday as Asian stock markets clawed back from a drastic sell-off after a surprise interest rate cut by the Federal Reserve prompted investors to take risky positions to sell the Japanese currency. High-yielding currencies also extended gains against the dollar as the U.S. central bank's emergency move on Tuesday to cut the federal funds rate by 75 basis points to 3.5 percent -- the biggest cut in 23 years -- slashed the dollar's yield advantage. Asian stocks rose a day after the Fed's move, reversing a recent plunge triggered by a wave of panic selling in global equities. They later trimmed gains as concerns of U.S. weakness trickling into other economies curbed a willingness to take risky positions. Traders said Wednesday's market moves were centred on riskier assets such as stocks and high-yielding currencies, although many expect rallies in such assets to be short-lived. A lot of people are now thinking it's a bear market, said Sean McGoldrick, head of forex trading at Morgan Stanley in Tokyo, saying riskier assets such as high-yielding currencies and stocks had retraced much of their earlier gains. The bounces that we've seen in risky assets have been short-covering rather than fresh longs, he said, adding that high-yielders may head lower if recession concerns escalate. The euro climbed as much as 0.4 percent to the day's high of $1.4685 in early Tokyo trade, extending its rally after surging 1.3 percent on Tuesday, its biggest one-day percentage gain since early 2006. At 0200 GMT it was at $1.4635, relinquishing gains to trade little changed from late New York levels. The euro was supported as the European Central Bank's 4.0 percent interest rate now eclipses the federal funds rate, but some traders doubted the euro would rally aggressively as the Fed move could pressure the ECB to lower rates. The single European currency traded 0.35 percent higher against the yen at 156.40 yen, after jumping as high as 157.15 yen in earlier trade. The Nikkei share average rose 3.35 percent by midsession, having surged nearly 4 percent earlier in the day to recover from a 5.65 percent plummet on Tuesday. The Australian dollar rallied, climbing 0.3 percent against its U.S. counterpart and half a percent versus the yen after data showing that the nation's core inflation rate accelerated by its fastest pace in 16 years kept intact expectations for a domestic rate rise. Sterling was up 0.15 percent at 209.30 yen, pulling away from its lowest level in nearly two years hit on Tuesday, but the British currency trimmed early gains as a slight pullback in equity gains made some investors think twice about dumping the yen for high-yielders. Despite Tuesday's rate cut, a looming recession remained a major concern in the market, with some traders saying the Fed's move may not be enough to pump up the U.S. economy, which could keep the dollar struggling in the near term. A lot of people see the Fed's move yesterday as too little, said Hideaki Inoue, a forex manager at Mitsubishi UFJ Trust and Banking. Fed fund futures indicate that markets are fully pricing in another Fed rate cut by 50 basis points at a policy meeting ending on Jan. 30. Some traders felt a further significant cut could sooth worries about the U.S. economy, which could boost the dollar while pressuring the yen lower.

Yen stumbles after Fed cut boosts Asian stocks

The yen stumbled on Wednesday as Asian stock markets clawed back from a drastic sell-off after a surprise interest rate cut by the Federal Reserve prompted investors to take risky positions to sell the Japanese currency.

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