Dollar Drops to 15-Year Low Against the Yen

TOKYO -- The U.S. dollar has fallen to a 15-year low against the yen after the U.S. Federal Reserve announced new measures to shore up the ailing American economy.

The greenback was quoted at 84.71 yen late Wednesday in Tokyo, the lowest since 1995.
The dollar's recent weakness against the yen is making Japanese exports less competitive in overseas markets and is knocking shares of Japan's manufacturers like Sony Corp. and Toyota Motor Corp.

The Nikkei 225 stock average on Wednesday tumbled 258.20, or 2.7 percent, to 9,292.85.

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The dollar rose 1 percent versus a currency basket on Wednesday as financial markets pared back on riskier assets on dovish inflation and growth outlooks in the U.S. and the UK.

The dollar .DXY rose to 81.632, its highest level since July 30, with the latest move triggered by the Bank of England forecasting inflation to fall well below target in 2 years.

The dollar had already been rising as equity markets fell in the wake of the Federal Reserve's decision to invest proceeds from mortgage backed securities into government debt.

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The U.S. Federal Reserve's policy-setting committee prompted the latest dollar rally with its decision to preserve market liquidity at current levels, using the proceeds of maturing mortgage-backed securities to buy U.S. Treasurys.

The Fed made the move in response to its deteriorating outlook for the economy and rising fears of a double-dip recession.

The dollar initially fell on the news as the market mulled the prospect of U.S. interest rates staying down at current record-lows for even longer than anticipated.

However, as investors lost their appetite for risk and turned towards safe havens the dollar, as well as the yen, started to bounce back.

During Asian trading, concern over the global economy grew even worse as China reported that its retail sales were up only 17.9% in the year to July, down from an increase of 18.3% in the year to June. Also, consumer price inflation wasn't as high as expected, coming in at 3.3% as opposed to the 3.4% that was forecast last month. In June, inflation stood at 2.9%.

News from Japan didn't help either with machinery orders, a key forward-looking economic indicator, rising by only 1.6% in June rather than by the 5.5% that had been expected.

This all helped to knock Asian stocks lower and left European markets opening with losses of over 1.0%.

The euro was the main loser as it slipped back under $1.3200 but sterling also suffered as it waited to see if the Bank of England's latest Inflation Report proves as dovish as expected.

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