Tokyo - The dollar climbed against the yen on Wednesday as investors cheered news US President Barack Obama was poised to nominate the dovish Janet Yellen as the next head of the Federal Reserve.
In Tokyo midday trading, the greenback rose to 97.29 yen, from 96.86 yen on Tuesday in New York, where fears over the US government shutdown and a possible debt default hung over markets.
The euro weakened to $1.3563 from $1.3572, while rising to 131.99 yen from 131.47 yen.
“Among the major leads in the market today...a strong one is the Yellen decision,” said Toshihiko Sakai, senior dealer at Mitsubishi UFJ Trust and Banking.
“As a reaction to that, in the belief that the Fed will have a dovish chair, stocks picked up while there was an unwinding of short dollar/yen positions.”
Yellen is a supporter of the Fed's $85-billion-a-month bond-buying scheme and is considered unlikely to wind it down too soon. However, while a continuation of the loose monetary policy would be expected to press the dollar lower, dealers took the news as a positive, boosting riskier assets.
“The Fed is also scheduled to release minutes for its September meeting (later in the day), with investors scrambling for clues on when Fed tapering will finally begin,” Credit Agricole said.
The dollar has been sliding against the yen and euro over the past week owing to uncertainty caused by the budget stand-off in Washington that economists warn could lead to a catastrophic debt default.
Deputy Bank of Japan governor Hiroshi Nakaso warned on Wednesday that failure to solve the crisis could have “significant adverse effects” on the global economy.
That echoed warnings on Tuesday from the International Monetary Fund, which said a default “will be felt right away, leading to potential major disruption in financial markets both in the US and abroad”.
The Fund, in its new World Economic Outlook, projected the world's biggest economy would grow 1.6 percent this year and accelerate to 2.6 percent in 2014, down 0.1 and 0.2 percentage points respectively from its previous forecast. - Sapa-AFP