Dollar drops against yen as fiscal cliff looms

As the US moves towards an end-of-year fiscal cliff of spending cuts and rising taxes the dollar has weakened against the yen. In Asia on Wednesday trading was down by 0.30 per cent to 81.86 having hit a session high of 82.21 and a low of 81.79.

Investors are looking for safe havens as many believe lawmakers in the US will now not have time to find a way to shift the economy safely away from the cliff. The uncertainty appears to have supported the yen as the safe haven currency of choice as the dollar managed to gain against the euro.

The Congressional Budget Office said it was concerned that if the fiscal cliff cannot be avoided then the US economy in 2013 could retract by as much as 0.5 per cent. There are fears that any contraction could send the economy into recession.

The Republicans and Democrats are divided over spending cuts and tax hikes. The Democrats want to create government revenue by removing tax breaks for the wealthy. The Republicans claim that doing this will prevent small businesses from being able to grow, invest and create more jobs.

The yen has also strengthened against the euro and the pound. The pound dropped against the yen 0.31 per cent to end at 131.21 and the euro was down to 105.95, a drop of 0.3 per cent.