Risk aversion drives yen to one-year highs vs dollar

The yen held at its highest in over a year against the dollar early on Tuesday, having soared broadly as a selloff in European and US stocks stoked demand for the safe-haven currency.

The dollar was last at 115.57 yen after coming within a whisker of 115.00, a low not seen since November 2014. The Swiss franc, another traditional safe haven, hit its highest in six weeks.

Against the greenback, the euro flirted with $1.1200 after bouncing off Monday's low around $1.1086. The common currency benefited from a negative correlation with European stocks, which slumped to their lowest in more than two years.

Concerns over the health of the region's banks compounded worries over slowing global growth prompted investors to dump financial stocks. Shares in Deutsche Bank dropped 9.5%, leading decliners on Europe's Stoxx 50 index US stocks fell 1.4%.

"We had brutal price action overnight with risk assets hammered while safe haven assets were bid. There was no clear catalyst for the selloff, however market uncertainty has remained high," said Rodrigo Catril, currency strategist at National Australia Bank.

Traders said concerns about China continued to simmer in the background even with Beijing and much of Asia shut for the Lunar New Year holidays. Many markets in the region will re-open from Wednesday onwards, with Chinese markets returning next week.

Not helping sentiment, recent figures showed China's foreign reserves fell for a third straight month in January, as the central bank dumped dollars to defend the yuan and prevent an increase in capital outflows.

"Question marks still remain over China's ability to control its currency, even though the fall in FX reserves was smaller than expected," Catril added.

The flight-to-safety was particularly evident in Aussie/yen, which is often seen as a barometer of risk appetite. The Aussie has shed nearly 3% in the past three sessions and briefly dipped below 82.00 yen for the first time in two weeks. The Aussie managed to hold its ground on the greenback, staying above 70 US cents.

There is little in the way of market-moving economic news expected out of Asia on Tuesday, leaving investors again looking to Europe and the United States.