Dollar tops 107 yen as politics pressures Japan

Key Points
  • Falling currency market volatility boosts risk appetite
  • U.S. consumer prices rose 0.2 percent in February
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The dollar jumped against the yen on Tuesday, nearing a two-week high as the Japanese currency was pressured by a political scandal engulfing Prime Minister Shinzo Abe's government.

The weakened against other major currencies after Japan's ministry of finance said on Monday it altered documents related to a discounted sale of state-owned land to a school operator with ties to Abe's wife.

The dollar is also benefiting from the decline in broader currency market volatility which is encouraging investors to add positions in higher-yielding currencies, though the greenback's gains were capped before monthly U.S. inflation data.

U.S. consumer prices rose 0.2 percent in February, inline with the expectation of economists polled by Thomson Reuters.

"The broader story remains that of U.S. monetary policy normalization in the backdrop of an improving economy and a further decline in currency market volatility would only fuel more risk taking appetite," said Commerzbank's FX strategist Thu Lan Nguyen.

The dollar was trading at 106.95 against the , up 0.5 percent and just below a two-week high of 107.05.

The yen tends to suffer in an environment when riskier and higher-yielding assets are bid but Morgan Stanley strategists said in a note that a further deterioration in the political situation that affected the position of Abe, could see the yen "forcefully return towards its previous upward trend."

Elsewhere, though the renewed drop in currency volatility prompted investors to add bets on higher-yield currencies with the Australian dollar recovering smartly from three-month lows while the euro gaining nearly 2 percent in the last 10 trading sessions.

The euro was broadly flat around $1.2349 against the dollar on the day.