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US dollar posts biggest gain vs yen in a month

NEW YORK - The dollar on Wednesday posted its best performance against the yen in a month, after Japan’s prime minister said the measures.

In general, quantitative easing undermines yen’s rise cannot be left “as it is,” prompting speculation Japan may take additional quantitative easing

a currency’s value because it expands money supply to levels that could potentially lead to high inflation.

“The bias toward yen strength that was prevalent the last few weeks has turned, especially after the Bank of Japan announced those quantitative easing measures yesterday,” said Ron Simpson, director of FX research at Action Economics in Tampa, Florida.

“Any time you mention QE, that’s bad for a currency. So I think the risk for dollar/yen going into the end of the year is definitely to the upside.”

The dollar also gained against the euro as the Dow’s drop rekindled demand for the greenback as a safe haven. Investors were particularly concerned about the outlook for the financial sector, particularly after Sanford Bernstein put out a less bullish research note on JP Morgan.

Traders were also hesitant to push the euro higher before Thursday’s European Central Bank policy meeting, when the bank is expected to announce details of how and when it will remove excess liquidity from the system.

The market’s focus, however, remained on the yen in the wake of remarks from Japanese Prime Minister Yukio Hatoyama.

On Wednesday, Hatoyama said it was unclear if the yen’s recent rise was temporary but it could not be left “as it is,” the Nikkei business newspaper reported on its website.

Japan’s Chief Cabinet Secretary Hirofumi Hirano later downplayed Hatoyama’s remarks and said they were not a comment about currency intervention.

That, however, did not deter investors from selling the yen.