Cyprus bailout: Euro steady in Asia after Cyprus plunge

TOKYO (AFP) - The euro held steady in Asia on Tuesday on subsiding fears about a controversial bailout for Cyprus, while the yen weakened as a pro-easing team prepares to take over at the Bank of Japan.

In Tokyo afternoon trade, the European common currency fetched US$1.2954 (S$1.62) from US$1.2957 in New York on Monday, while it bought 123.84 yen (S$1.62) from 123.41 yen.

The dollar strengthened to 95.58 yen from 95.23 yen.

On Monday in Asia, the European unit plunged to as low as 121.76 yen and US$1.2903, while the dollar sat at 94.36 yen.

Investors were spooked on Monday after Cyprus unveiled a proposal at the weekend to impose a levy on all bank depositors in order to qualify for a 10 billion euro bailout for Cyprus.

Savers with up to €100,000 (S$161,865) would be taxed at 6.75 per cent, while those with larger accounts would be forced to pay up to 9.9 per cent.

The news sparked a global outcry and markets tumbled amid fears that the eurozone debt crisis could flare up again, while others fretted similar measures could be introduced in other troubled economies in the future.

However, some calm was restored on Tuesday after eurozone finance ministers told Cyprus to drop the levy on the smaller savings.

"The terms of the Cyprus bailout, including a levy on all bank depositors, while still subject to potential amendments, have triggered an unprecedented wave of criticism and fears over possible bank runs and financial contagion to the rest of the eurozone," Credit Agricole said.

"The deal could have wide-ranging consequences in terms of confidence in banks in the troubled countries."

In Japan, Mr Haruhiko Kuroda and his two deputies - who are all advocates of aggressive monetary easing - are scheduled to take up their posts at the helm of the country's central bank on Wednesday.

"With the new Bank of Japan leadership slated to assume their positions tomorrow ... more pre-fiscal year-end easing remains a distinct possibility," CLSA equity strategist Nicholas Smith told Dow Jones Newswires.

Eyes are also on a US Federal Reserve meeting for clues about policy moves after a decline in a key US consumer sentiment index highlighted ongoing weaknesses in the world's biggest economy.