Dollar falls into upper 88 yen range after Fed rate cut to near zero.
The U.S. dollar fell into the upper 88 yen range Wednesday morning in Tokyo as investors sold it after the U.S. Federal Reserve slashed its target for the key short-term rate to an all-time low level near zero percent Tuesday.
At noon, the dollar fetched 88.99-89.04 yen against 89.00-10 yen in New York and 90.29-30 yen in Tokyo at 5 p.m. Tuesday.
The euro traded at $1.4080-4085 and 125.33-38 yen versus
$1.3995-4005 and 124.65-75 yen in New York and $1.3705-3707 and 123.75-79 yen in Tokyo late Tuesday.
In New York overnight, the dollar plunged to as low as 88.63 yen at one point after the Fed cut the target for the federal fund rate to a range of zero to 0.25 percent from 1 percent, surprising currency traders who had expected a half percentage point cut on average.
The U.S. currency continued to be sold Wednesday morning in Tokyo and traded in the upper 88 yen range, prompting Japan's top currency official to issue a warning against a strong yen.
''Rapid fluctuations are undesirable,'' said Naoyuki Shinohara, vice finance minister for international affairs. ''We continue to monitor (movement in the currency market) carefully.''
Dealers said market participants unloaded dollar holdings due to interest rate differentials.
''Market participants are selling the dollar for the yen as (the Fed's) interest rate is now lower than that of Japan,'' which erodes the value of the dollar, said Akihiro Tanaka, senior currency trader at Resona Bank.
The Bank of Japan's key short-term interest rate stands at 0.3 percent.
At the conclusion of a two-day policy meeting Tuesday, the Fed said its Federal Open Market Committee members unanimously agreed on the rate cut and that it ''will employ all available tools'' for the resumption of sustainable economic growth and to preserve price stability.''
With the rate cut, coupled with signs of more quantitative easing ahead issued by the Fed, market participants are now looking at ''what the BOJ will do about the recent appreciation of the yen and whether it will follow suit by lowering its already close-to-zero interest rate,'' he added.
The Japanese central bank is holding a two-day policy meeting that will begin Thursday.
Meanwhile, the euro advanced relative to the dollar and yen, trading around $1.4000, a level last seen in October, on diminishing prospects of an immediate interest rate cut by the European Central Bank in contrast to the Fed, dealers said.