Tokyo: The Japanese yen sank to a 20-month low against the US dollar in Asian trading Wednesday on expectations that Japan's incoming prime minister will pursue drastic stimulus policies to drive the country's economy out of deflation.
Shinzo Abe, who won a landslide victory in an election earlier this month, will be sworn in as premier today.
On Tuesday, he reiterated that he seeks to tame the strong yen to help revive Japan's economy.
"There is no reason to expect the trend to change anytime soon, with no incentive to buy the yen now," said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo.
"Of course, on an intraday basis, there could be spells of profit-taking, but overall, there is no compelling reason that would make it necessary to buy the yen," he said.
Abe has also called for aggressive monetary easing by the Bank of Japan combined with massive fiscal spending.
Overall activity was thin, after most global financial centers were closed for the Christmas holiday.
All G10 markets except Japan were closed on Tuesday, and only Japanese and US markets were to open on Wednesday.
The dollar rose as high as 85.38 yen on the EBS trading platform, its highest since April 2011, and last stood at 85.27 yen.
Minutes of the BOJ's November policy meeting released on Wednesday revealed that some board members said the bank must act decisively, without ruling out any policy options, if the outlook for the economy and prices worsens further.
Ongoing concerns about the US budget impasse continued to underpin the US currency.
The next session of the US Senate was set for Thursday, but the issues presented by "fiscal cliff" of tax hikes and spending cuts scheduled to take effect next year were not on the calendar. The US House of Representatives has nothing on its schedule this week, but its members have been told they could be called back on 48 hours notice, making their Thursday return a theoretical possibility.
The dollar index stood at 79.728, after it rose as high as 79.780 on Tuesday, its loftiest level since December 14.
The euro traded at USD 1.3182, nearly unchanged from the previous session and below its 7 1/2-month high of USD 1.33085 hit one week ago.
Against the yen, the euro rose as high as 112.46 yen, approaching its 16-month high of 112.59 yen hit on December 19. It last stood at 112.42 yen.
With markets in Australia still closed for the holiday, the Australian dollar did not stray far from recent ranges. It last stood at USD 1.0357, matching a one-month low struck on Monday.
With Agency Inputs
First Published: Wednesday, December 26, 2012, 09:19