The dollar fell versus the yen Monday in Asian trading on continued subprime loan worries, although it recouped some of its early losses as Japanese importers bought dollars to settle their accounts.
The dollar was trading at 117.58 yen midafternoon, down from 118.41 yen late Friday in New York. The euro rose to US$1.3812 from US$1.3801.
The U.S. currency dropped to as low as 117.19 yen in early trading. Non-Japanese fund players bought the yen in anticipation that the Nikkei 225 Stock Average would fall steeply Monday.
Such expectations were fueled by the slump in Wall Street on Friday after Standard & Poor's downgraded Bear Stearn's rating outlook. Recent volatility in the U.S. markets has also led to more caution on the part of investors and the unwinding of yen-carry trades.
But the Japanese stock market's downturn Monday was within expectations, and the dollar recovered later on buying by Japanese importers and individual investors still eager to buy the currency to take advantage of relatively low Japanese interest rates.
However, the market remains bearish toward the dollar, and the currency is likely to be capped around 118 yen even if U.S. stocks rebound, traders said.
"The market hasn't fully digested subprime mortgage market woes yet and the dollar has entered a complete downward trend," said Masashi Matsuzawa, senior dealer at Mizuho Corporate Bank. He predicts the dollar might fall below 116.00 yen if jitters continue over U.S. subprime loans.
A weaker-than-expected U.S. jobs report Friday combined with the already existing credit market problems to raise concerns about the overall outlook of the U.S. economy and weigh on the dollar.
"The feeling that the U.S. economy is slowing down is increasing and it will take some time before markets recover," said Masashi Kurabe, senior FX manager at Bank of Tokyo-Mitsubishi UFJ.
Against other regional currencies, the dollar was mostly higher, rising to 32.890 Taiwan dollars from 32.874 Friday, and to 1.5187 Singapore dollars from 1.5168. It fell to 7.8278 Hong Kong dollars from 7.8280.