The safe haven Japanese yen sagged on Tuesday as optimism that the United States and China could begin negotiations on trade helped ease concerns about a trade war, reviving demand for riskier assets. Global markets were shaken last week after US President Donald Trump moved to impose tariffs on Chinese goods and Beijing threatened similar measures, sparking fears of a trade war between the world's two largest economies.
But reports of behind-the-scenes talks between the United States and China have eased concerns for now that global trade frictions could escalate out of control, with traders hoping any actual US measures will be much more modest than first announced. Chinese Premier Li Keqiang said on Monday it and the United States should maintain negotiations, reiterating pledges to ease access for American businesses.
"There is this sense in the market that the situation might not escalate into a trade war," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, adding that China's relatively moderate reaction had helped soothe such jitters. The yen, often viewed as a safe haven currency in times of market turbulence and economic uncertainty, partly because of the resilience provided by Japan's current account surplus, retreated due to the revival in investor risk appetite.
With the yen on the defensive, the dollar rose 0.2 percent to 105.62 yen. The greenback has bounced back after hitting a 16-month low of 104.56 yen on Monday. Market participants said the yen showed limited reaction to testimony in Japan's parliament by a former finance ministry official, who said Japanese Prime Minister Shinzo Abe, his wife, Finance Minister Taro Aso and their top aides did not give instructions to change documents about a land deal at the heart of a suspected cronyism scandal.
The euro rose 0.2 percent against the yen to 131.53 yen, after surging 1.4 percent on Monday for its biggest one-day percentage gain since June 2017.
Against the dollar, the euro rose 0.1 percent to $1.2454, clinging near Monday's high of $1.24615, which was the euro's strongest level since mid-February.
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