Yen Slides Toward Three-Year Lows Vs. Dollar, Euro

The yen raced toward three-year lows against the U.S. dollar on Wednesday as expectations that Japan will pursue more aggressive policies to end deflation sparked a wave of selling in the currency.

The ICE dollar index , which measures the greenback against a basket of six major global currencies, rose to 79.587 from 79.504 in North America late on Tuesday. Likewise, the WSJ dollar index rose to 71.26 from 71.13.

Against the Japanese unit, the dollar  was fetching ¥93.78, after earlier hitting a high of ¥94.05 — a level not seen since May 2010, according to FactSet data. The dollar had bought ¥93.43 late Tuesday, and ¥92.30 on Monday.

The euro , meanwhile, climbed to ¥127.24, pulling back a bit from the day’s highest point at ¥127.69 — a level last seen in January 2010, according to FactSet. In North American trade, the euro had changed hands for ¥126.88 late Tuesday, and ¥124.75 on Monday.

The yen’s fall came after Bank of Japan Gov. Masaaki Shirakawa said he would step down three weeks before his term ends on April 8 in order to coincide with the departure of his two deputies..

“In our opinion, [Shirakawa’s] decision to leave at the same time as his deputy governors suggests that the Japanese government is close to announcing a successor, who will undoubtedly reinforce the central bank’s dovish message,” said BK Asset Management managing director Kathy Lien.

The announcement fueled expectations that he may be replaced by someone who prefers more aggressive easing to pull Japan from an era of falling prices.

“It is expected that Japan’s government will rush for the new central-bank chief selection for further steps in achieving the inflation target. This has further paved way for bold monetary easing, which will push yen still lower to ¥95 levels” against the dollar, analysts at India Forex Advisors wrote in a note to clients.

Among other major currency pairs, the euro was buying $1.3578, little changed from $1.3581 late Tuesday, as markets were cautious ahead of Thursday’s policy decision at the European Central Bank.

The British pound  was buying $1.5654 versus $1.5659, while the Australian dollar  fell to $1.0349 from $1.0410.

Marketwatch