The yen hit a seven-week peak against the dollar today as short-term players chased it higher following a thumping win for the opposition Democratic Party in Japan's election, breaking chart supports for the greenback.
The yen edged up after the landslide election victory yesterday, and then gathered pace as automatic dollar sell orders were triggered close to 93.00 yen per dollar, traders said.
Falling Chinese shares also prompted investors to buy the yen and sell other currencies perceived as risky, including higher-yielding Australian dollar.
But traders were cautious about lifting the yen too high too quickly with uncertainty about the leadership of the new Japanese government still hanging and with the London market closed today for a bank holiday.
"There were a few stale longs liquidated this morning, with dollar/yen and euro/yen selling," said a senior trader at a European bank in Hong Kong.
"Shanghai being down 5 per cent has muddied the picture as well as to whether it's a reaction to the election victory or risk aversion. It's probably a bit of a combination of both."
The dollar fell around 1 per cent to 92.54 yen on trading platform EBS, its weakest level since mid-July. The euro also dropped 1 percent to 132.44 yen and edged lower 0.1 per cent to $1.4287.
Traders said dollar/yen had broken chart levels around 93.00, triggering stop losses around 92.90, after Japanese exporters sold the dollar to repatriate overseas earnings at the month-end.
Japan's Nikkei share index slid in volatile trade from an 11-month high hit after the Democrats' election win.
China's benchmark stock index extended losses and fell over 5 per cent after losing 2.9 per cent on Friday amid worries about a steep drop in Chinese bank lending in August.
Investors are now waiting to see what policies the new Japanese government will follow and how it will differ from the old.
Reuters