NEW YORK (CNNfn) - The Japanese yen soared against the U.S. dollar and chipped away at Treasury bonds for a second day Thursday, on signs Japan is getting its economic house in order just as a U.S. slowdown seems nearer.
The yen tacked on further gains overnight following signs the Japanese parliament was moving Wednesday to pour fiscal stimulus into the country's lagging economy, while bulking up its woe-stricken banking system.
Early Thursday, the yen was up 5.02 to 115.68 yen to the dollar, after hitting as high as 111.63, its highest level since July 1997.
Also contributing to the yen's surge was a speech Wednesday by Federal Reserve chief Alan Greenspan outlining his concern about an economic downturn in the United States.
That tugged the U.S. Treasury bond lower, driving many investors into yen-denominated assets. But hopes for a Fed easing of interest rates kept shorter-term Treasurys afloat and a cap on the bond's losses.
At around 9 a.m. Thursday the 30-year benchmark Treasury was 16/32 in price at 109-6/32 as the yield, which moves inversely, rose to 4.90 percent. The bond yield fell to a new all-time low of 4.72 percent Monday.
The embattled hedge fund industry, burned in recent months by bets against a rallying bond, was said to be selling the long-term Treasurys Thursday, adding to the bond's slump.
"(The yen's climb) complicates the equation, and brings out rumors of foreigners liquidating dollar-based assets," Matthew Alexy, market strategist with CS First Boston, said.
"Everything is going down: the price of the dollar, the price of stocks, the price of bonds," said Alexy. That has forced investors to try to clean up their balance sheets by reducing their speculative positions, or de-leveraging, he added.
But a Thursday plunge in stocks in Asia and Europe, following the yen's surge, and signs of a weaker open on Wall Street also kept bond losses muted. In recent months, the bond has rallied whenever stocks get hit as investors reach for the relative safety of bonds.
On the U.S. economic front, bond traders didn't get much of a sign Thursday of a U.S. slowdown after weekly jobless claims rose by 11,000 last week, just 1,000 more than many economists had expected.
BOE cuts rates, but D-mark holds
Elsewhere, the German mark held on to its gains against the dollar, even though the Bank of England's monetary policy committee voted to cut short-term interest rates by a quarter of a point.
The mark was up 0.81 pfennig to 1.6080 to the dollar, after rising to a 20-month high of 1.5875 to the dollar.
While first Spain and now England have cut interest rates, economists expect that Germany will hold its line before the launch of the euro currency next year.