The yen surged to an eight-month high against the US dollar on Monday as Japanese officials waved off any plans to stem the currency's rise, driving the Nikkei down more than 2 per cent and sparking a broad retreat in risky assets.
The yen's jump against the US dollar has it poised to make a run at the 13-year peak of 87.10 struck earlier in the year, with the rise through levels that Japan's big exporters had planned for this financial year hitting their shares.
The Japanese currency's climbed as senior officials again made clear they were not considering intervention to stem the rise at this point, with Finance Minister Hirohisa Fujii telling Dow Jones Newswires that the rise was "not abnormal".
Fujii later said yen moves were becoming one-sided and stable moves were desired, but market players were more focused on the hands-off aspect of his remarks.
Those comments reinforced the perception that the new ruling coalition is taking a different tack on currency policy than its predecessor and that Japan is no longer as trigger-happy as it once was, having spent about $US400 billion to protect its fragile economic recovery in 2003 and 2004.
"There is little caution towards the government intervention at the moment because Japanese authorities say they are not thinking about taking action," said Hideki Hayashi, global economist at Mizuho Securities in Tokyo.
"In the longer term, the dollar could resume its slide against the yen if data, such as U.S. jobs later this week, points to a subdued recovery.
The Nikkei share average shed 2.4 per cent in morning trade to hit a two-month low and briefly fell below the 10,000 line. Among exporters, Honda Motors fell 5.3 per cent and electronic parts maker Kyocera Corp lost 2.6 per cent - among the biggest drags on the index.
The US dollar fell as far as 88.23 yen on trading platform EBS before trimming losses to 89.33 yen, down 0.3 percent on the day. The yen staged broad gains, with the euro down 1.1 per cent at 130.25 yen and sterling shedding 1.4 per cent to 141.10 yen.
Other Asian equity markets also retreated, but losses were smaller than those in Japan. The MSCI benchmark of Asia-Pacific shares outside Japan fell 1.4 per cent. South Korea's KOSPI index was down 1 per cent, while Taiwan's TAIEX dipped 0.9 per cent.
Some foreign investors were also pulling funds out of Asian stock markets before quarter-end, partially reversing some of the heavy buying that has taken place over the past six months on bets favouring the region's growth prospects.
Foreign investors were sellers for a third consecutive session in South Korea on Monday.
"Without strong buying by foreign investors, markets are turning lower, and weaker-than-expected US economic data are weighing on sentiment," said Choi Seong-lak, a market analyst at SK Securities in Seoul.
Reuters
