USD/JPY hit a 13 year low in Asian session trade today touching 88.15 after the US Senate failed to agree on a bailout package for the Big Three automakers. The news sent a wave of risk aversion flowing through the Asian equity markets as Nikkei tumbled more than 4%. Meanwhile the commdollars were the biggest victims of the news in the currency market with Aussie and loonie plunging more than 200 points from yesterday’s close.

Another night of risk aversion has lifted the yen to a six week high against the euro and a four week high against the buck as WHO raised the alert status of the swine flu crisis from 3 to 4. Keiji Fukuda, assistant director-general for health security and environment noted that the increased threat level “signifies that we have taken a step closer to pandemic. It is also possible that as the situation evolves over the next few days we could move into Stage 5.”

The euro remained under pressure throughout Asian and early European trade dogged by risk aversion flows and mounting concerns over the lingering economic contraction in the 16 member union while the pound continued to rally approaching the key psychological figure of 1.5000. A story in UK Telegraph noted that fully one third of European junk bond credits could default on their debt as the export driven region sees no signs of pick up in demand.

Yen’s 200+ point rally against the greenback tonight suggests that currency markets may be in for rough ride this week as risk aversion hits stocks and high beta currencies come under renewed selling pressure. News that the Obama administration is entertaining the possibility of a GM bankruptcy and has asked Rick Wagoner to step down from his post as chairman, sent Asian markets tumbling on fresh concerns over the possible economic fallout from such a move.

The much anticipated announcements from Washington have triggered a dramatic turn in the currency and equity markets. With investors flocking back into the safety of US dollars and the Dow Jones Industrial Average falling 381 points, it is clear that investors are not satisfied with the Obama Administration’s new programs to unlock the credit the market and rescue the financial sector. If today’s announcements were to be measured by their ability to restore confidence in the financial markets, then the new President has failed miserably. Fortunately we are more optimistic and believe that economic stability will be restored under Obama’s leadership, but patience may be needed.

With most of Asian and Australia out on holiday, the liquidity starved conditions in the currency markets created some exaggerated movements in both euro and pound on the first trading day of the week, as both units fell hard at the start of Asia trade only to stabilize and recover on better risk appetite as the night progressed.