Dollar hits 1-year low vs yen on oil drop

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The dollar fell to a more than one-year low against the Japanese yen on Wednesday as crude oil prices dropped near 13-year lows and risk appetite waned.

The U.S. currency was down 0.41 percent at 116.98 after hitting a session low of 115.970 yen.

Investors said the yen could climb as high as 110 per dollar this year, said Karl Schamotta, director of FX strategy and structured products at Cambridge Global Payments in Toronto, as many anticipate the Bank of Japan will not employ additional stimulus measures or accelerate its quantitative easing program.

"That's a fairly substantial reversal from where we were," Schamotta said, "and certainly I think that the bazooka that (Japanese Prime Minister Shinzo) Abe was deploying last year has run out of ammunition."

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Further bolstering the yen was data showing U.S. consumer prices unexpectedly fell in December. That suggests inflation may be slow to rise toward the U.S. Federal Reserve's target and that the dollar's value will be unlikely to increase.

But oil's continued slide also pushed traders out of commodity currencies and into the dollar.

The dollar index, which measures the greenback against six major currencies, was slightly higher at 99.16.

The euro was lower against the U.S. dollar at $1.0860.

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The dollar also rose sharply against oil-linked currencies like the Brazilian real, Norwegian crown and Russian rouble, which fell to its lowest since re-denomination in 1998.

The Canadian dollar looked set to continue a 13-day losing streak against its U.S. counterpart, despite gaining a full cent earlier in the session after the Bank of Canada decided to keep its 0.5 percent overnight target interest rate unchanged.

"Because oil prices have fallen so much, the market really believes that the BoC needs to cut interest rates," said Kathy Lien, managing director at BK Asset Management in New York. "They do need to cut interest rates if they want to prevent the economy from falling into recession again, but they're probably waiting to see how much fiscal stimulus they're going to get and ... if oil prices are going to stabilize."

The loonie hit a 13-year low in overnight trading.