Dollar Sinks To Record Low Vs Yen Despite Intervention Risk

Unconvinced by the near constant risk of intervention, traders sent the dollar to a new record low against the yen Friday.

The dollar fell as low as Y75.94 before clawing back most of those losses. The dollar also weakened against the Swiss franc, though its central bank is also looming over the currency market with the possible threat of action.

There are "risks at these levels that the [Swiss National Bank or Bank of Japan] will step in over the weekend," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "It highlights the extent of how in demand the market is for safe havens."

Analysts say Friday's dollar drop below Y76 for the first time was likely pushed by technical triggers--when automatic trades set up around the previous record low of Y76.25 were hit, the currency pair took a dive.

The dollar's consistent drop against the yen has pushed the Bank of Japan to intervene multiple times in recent months and forced government officials to talk tough about fighting the move, but so far they haven't been able to cause much more than a temporary pause in the currency's rise.

Japan's intervention earlier this month only provided temporary relief. The country's Finance Minister Yoshihiko Noda said Japan might look to take more long-term steps to provide manufacturers stung by the strong currency relief, including possible measures in the country's third supplementary budget.

Earlier Friday, Japan's top currency policy bureaucrat said that fundamentals were not driving demand for the yen, an oft-repeated piece of rhetoric. There's an element of speculation behind the trading, said Takehiko Nakao, vice finance minister for international affairs.

Switzerland is facing an eerily similar fate as investors pour into the franc and out of the dollar and euro. The strong currencies hurt the countries' exporters who face competition in international markets from countries where goods are cheaper.

Both the U.S. and Europe are facing major economic questions and struggling under mounting debt, issues that have made the franc and yen unattractive options for investors.

Rumors have swirled for more than a week that the SNB might peg its currency or at least narrow its trading range to a specific band against the euro to weaken the franc. Those threats weakened the franc for a short while, but it's already clear that investors are ramping up their one-way bets favoring the currency again.

The "SNB is reluctant to do the next step to take a currency peg or band," said Marc Chandler, global head of foreign exchange at Brown Brothers Harriman in New York.