Yen Drops on Bets Yesterday’s Risk-Aversion Surge Was Overdone

May 7 (Bloomberg) -- The yen weakened against most of its major counterparts on bets risk aversion that drove a surge in Japan’s currency was overdone.

The yen fell against 15 of its 16 most-traded counterparts. The euro is set to rally after it sank more than 5 percent below its 21-day moving average versus the dollar, according to online currency trading company Ueda Harlow Ltd.

“Currencies such as the yen have undergone sharp moves, so we’re likely to see a correction of that,” said Yuji Saito, director of the foreign-exchange department at Credit Agricole Corporate and Investment Bank in Tokyo. “The markets are prone to choppiness.”

The yen weakened to 91.11 versus the dollar as of 9:22 a.m. in Tokyo from 90.58 in New York yesterday, when it jumped as much as 6.2 percent. Japan’s currency was at 114.93 per euro from 114.32 yesterday and as strong as 110.70.

The euro-yen currency pair “normally moves within a 3 percent range from its 21-day moving average,” said Toshiya Yamauchi, a senior foreign-exchange analyst at Ueda Harlow in Tokyo. “This will make the euro eligible for a short-term rebound.”

The euro’s 14-day relative strength index against the yen, a comparison of magnitudes of gains and losses, was 28.4 today, below the 30 threshold that indicates the currency may have fallen too quickly and is poised to strengthen.