Yen hits record low against euro after G8 meeting

TOKYO, (AFP) - The yen sank to an all-time low against the euro in Asian trade Monday after Group of Eight finance ministers made no mention of the currency's weakness at a weekend meeting, dealers said.

They said the market was also focusing on China's latest measures to try to control its heady economic growth by raising interest rates and widening the yuan's narrow trading band.

The dollar firmed to 121.25 yen in Tokyo morning trade, close to a recent near three-month high, up from 121.10 in New York late Friday.

The euro strengthened to 1.3518 dollars from 1.3504 and to 163.88 yen from 163.56.

Players continued selling the yen "after the G8 finance ministers' meeting failed to make a strong reference to the weak yen," said Saburo Matsumoto, chief forex strategist at Sumitomo Trust Bank.

"I expect the yen to be weaker in the coming weeks," Matsumoto added.

The two-day meeting in Germany also rejected calls from their host, Germany, to move towards a voluntary code of conduct for hedge funds, which are among those borrowing cheap yen to invest overseas, keeping the currency's value low.

Participants were also weighing news of China's fourth rate hike in the past year which analysts said was partly aimed at taming a rampant stock market.

Market partipants were nervous the new measures might trigger a fall in Chinese share prices that could reverberate around world markets, dealers said.

Chinese share prices opened sharply lower Monday but quickly rebounded as investors pondered the implications of the central bank's tightening moves announced late Friday.

National Australia Bank currency strategist John Kyriakopoulos said that with Shanghai share prices up 56 percent this year, a 20 percent correction would not be a surprise.

"However, investors are starting to believe that such a correction is desirable and unlikely to unsettle global equity markets if China's rapid growth rate continues," he wrote in a note to clients.

The Chinese authorities announced they would widen the yuan's trading range to 0.5 percent on either side of a daily reference rate against the dollar from the previous 0.3 percent.

"The band widening appears aimed at placating the US Congress which is threatening import tariffs if China doesn't allow for more currency flexibility," argued Kyriakopoulos, added that there was scepticism that the move signals a likely sharp rise of the yuan ahead.