Tokyo - The euro climbed in Asia on Thursday after a bid to topple Italy's government fell apart, while the US budget impasse raised fears of a catastrophic debt default, weighing on the dollar.
The European single currency bought $1.3606 in Tokyo, from $1.3580 in New York where it tumbled to an eight-month low. The euro was also higher at 132.87 yen, from 132.21 yen.
Bucking its downward trend, the dollar climbed to 97.68 yen, from 97.34 yen.
A Tokyo trader said the dollar-yen rate - which has taken a beating since the US government went into shutdown mode this week - gained institutional support from “big buying from a big Japanese player”.
But another trader added: “The overall sentiment is to sell the dollar on the back of the partial US government shutdown.”
The euro jumped after former Italian prime minister Silvio Berlusconi abandoned his bid to topple Enrico Letta's government in a humiliating climbdown after key allies rebelled against his leadership.
The move averted a political crisis and restored a measure of stability in a nation struggling to put its public finances in order.
As the Bank of Japan kicks off a two-day policy meeting, the European Central Bank on Wednesday held key rates at all-time lows of 0.50 percent while it promised to do everything possible to prevent tightening market conditions from choking off a recovery.
Bank President Mario Draghi said he expected rates “to remain at present or lower levels for an extended period of time”.
“The eurozone recovery is expected to continue, which lowers the risk for (the ECB) to consider a more aggressive monetary policy stance in the very short-term,” Credit Agricole said.
In the US, talks between President Barack Obama and top Republicans failed to end a government shutdown on Wednesday, ensuring that the United States heads into a third day of a dramatic government spending freeze, with no end in sight and the world's biggest economy in peril.
Obama has warned that the political crisis over a budget row could see the US default on its debt, as weak US payrolls data on Wednesday added to the gloom.
Dealers were also keeping a close eye on the BoJ's policy meeting, which wraps up Friday, to see if it expands its asset-buying programme.
Policymakers are meeting after Tokyo decided this week to hike the nation's sales tax to 8.0 percent from 5.0 percent, a move seen as crucial to chopping a huge national debt but which critics say could derail Japan's economic recovery. - AFP