TOKYO – The dollar was barely traded in Asia on Wednesday as shocked traders pondered the possible after-effects of terror attacks in New York and Washington.
The greenback wavered around 119.35 to the dollar (JPY-), with trade reduced to a bare minimum. "The theme in the market today is avoiding settlements," said a dealer at a Japanese bank.
More than a dozen Japanese financial institutions, many with dealing rooms, had operations in the World Trade Center, which was destroyed in the attack.
However, the Bank of Japan said on Wednesday that Japanese banks had experienced no settlement problems for dollar funds in Tuesday's New York market.
Dealers and analysts said the dollar's fall would likely be limited by the fact that the effects of the attack would be felt all around the world.
"The initial response was obviously to sell the dollar. But given the current fragile global economy, the impact will not be limited to America," said Taisuke Tanaka, global currency strategist at Credit Suisse First Boston.
Tokyo's own woes were underlined when the Nikkei stock average plunged in the aftermath of the attack, falling below 10,000 for the first time since August 1984.
Only a day earlier, credit-rating agency Standard and Poor's downgraded the outlook for its AA-plus rating on Japan.
Tanaka also said emergency economic measures such as a cut in interest rates would likely be introduced to provide support for the U.S. economy, thus putting the brakes on any dollar slide.
At one point, the dollar managed to bounce as far as 119.80 from its overnight trough around 118.50, but the rebound lacked energy and soon tailed off.
The euro was bid at $0.9099 (EUR-) in late morning, down from a peak of $0.9169 reached after the attacks.
Against the yen, it was bid at 108.60 (EURJPY-).
The Swiss franc was a beneficiary of the U.S. crisis, standing at 1.6470 (CHF-) to the dollar in late morning, compared with 1.6878 in Tokyo a day earlier.
Japanese officials were eager to make clear they were standing by to step in should any difficulties arise in the currency markets. Finance Minister Masajuro Shiokawa said in a briefing that he was considering forex intervention.
"If the unstable conditions persist, intervention may be necessary," Shiokawa told a news conference. "We must prevent speculative forces from becoming too strong."
Speculation over such a move weakened the yen on Tuesday, ahead of a planned meeting between Shiokawa and U.S. Treasury Secretary Paul O'Neill that was canceled after the attacks.
Shiokawa said he did not discuss intervention when he spoke to O'Neill earlier in the day.
Japan's top financial diplomat, Haruhiko Kuroda, also said he was watching the foreign exchange market carefully and would take action if needed.