The yen surged to a seven-month high against the dollar on Wednesday after Japan’s incoming finance minister said a strong yen had benefits for the nation’s economy.
Hirohisa Fujii also said he was opposed to currency intervention if movements were gradual, adding that current moves were currently “not rapid”.
Analysts said the comments suggested the new Japanese government was not as keen to interfere in the currency markets as the old one and gave the green light to investors to buy the yen.
The yen rose 1 per cent to Y90.16 against the dollar, its strongest level since early February.
The yen also climbed 0.7 per cent to Y132.52 against the euro and gained 0.8 per cent to Y148.75 against the pound.
Meanwhile, the dollar dropped to a fresh one-year low on a trade-weighted basis and hit its weakest level so far this year against the euro as rising risk appetite boosted global stocks and stemmed haven demand for the US currency.
Investors abandoned the relative safety of the dollar after Ben Bernanke , chairman of the Federal Reserve, said the recession was “probably over” for the first time.
Analysts said the dollar was being punished since falling dollar borrowing rates had seen it supplant the yen as the primary funding currency for carry trades, in which low-yielding currencies are sold to finance the purchase of riskier, higher-yielding assets elsewhere.
“Very poor dollar sentiment and momentum makes further dollar selling highly plausible,” said Derek Halpenny at Bank of Tokyo-Mitsubishi-UFJ.
The dollar index, which tracks its value against a basket of six major currencies, dropped 0.4 per cent to 76.225, its weakest level since September 2008.
The dollar also dropped to a fresh low for the year of $1.4713 against the euro, before paring some its losses to stand down 0.2 per cent at $1.4685.
Elsewhere, the dollar fell 0.2 per cent to $1.6508 against the pound, lost 0.1 per cent to SFr1.0338 against the Swiss franc and dropped 0.6 per cent to SKr6.9018 against the Swedish krona.
Meanwhile, increasing optimism over the prospects for global growth boosted commodity-linked currencies.
The Australian dollar surged 1 per cent higher to a fresh one-year high of $0.8715 against the US dollar, while the New Zealand dollar climbed 1.1 per cent to $0.7122, the Canadian dollar gained 0.6 per cent to C$1.0668 and the Norwegian krone rose 0.4 per cent to NKr5.8560.
