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Koichi Hamada said on Monday that the yen's
level of around 120 per dollar was very weak and that 105 yen to
the dollar would be more appropriate.
The yen was also helped by the Bank of Japan's signal on Monday
that the benefits of its stimulus program were broadening,
dampening talk of more near-term easing.
Japanese Economics Minister Akira Amari said on Tuesday he would
not comment on foreign exchange levels.
The dollar fell 0.35 percent against the yen to 119.65 yen ,
while the euro lost 0.4 percent to trade at 126.40, having hit a
two-year low of 126.08 earlier in the European session.
"Hamada's comments lead to speculation that the Japanese
government is uncomfortable with rapid yen weakness," Nomura
currency strategist Yujiro Goto said. "In the short term, it may
slow down the yen's weakness against the dollar, but against the
euro, we expect it to strengthen."
Goto said Japanese government bond yields above German
Bund yields made yen investments more attractive compared to the
euro assets. That was driving long term investors such as
sovereign funds and central banks to gradually shift their
portfolios towards the yen.
"We are expecting the euro to drop to 125 yen," Goto said.
The euro was flat against the dollar ahead of U.S. retail sales
data later in the day. It was last trading at $1.0565, not far
from last month's 12-year low of $1.0457. The euro also hit a
2-1/2 month low against the Swiss franc of 1.0297 francs and a
4-1/2 month trough against the Norwegian crown.
Weighing on the euro was a Financial Times report that Athens
was preparing for a debt default if it did not reach a deal with
its creditors by the end of the month. Greece denied the report,
saying negotiations were proceeding "swiftly".
"Overall, the position with Greece is now becoming more
critical, in our view, and is set to put the euro under
increasing pressure," Morgan Stanley said in a note. "A move
below $1.0460 March lows would open the way for a decline
towards the $1.0200 area initially."
(Editing by Louise Ireland)
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