The yen edged back down on Thursday after earlier rallying on remarks by the Bank of Japan Governor Haruhiko Kuroda, while the New Zealand dollar plunged after a surprise interest rate cut. The dollar last traded at 123.05 yen, up about 0.3 percent from Wednesday. The dollar had tumbled 1.3 percent on Wednesday - its biggest one-day fall in six months - as investors unwound yen-short positions following Kuroda's comment that the yen was already "very weak".
The euro rose 0.2 percent to 139.14 yen, following its biggest drop in over two months on Wednesday, as market participants tried to assess whether Kuroda's remarks should be taken more as an observation or a warning. Because his remarks came in response to questioning from a legislator in parliament, and his prepared testimony was more measured, many believe that Kuroda only intended to comment on broad foreign exchange trends ahead of the US Federal Reserve's expected tightening move, which could come as early as September.
"Most people might think that Kuroda would like to slow the dollar/yen's moves, but I think it will go back to moving on fundamentals," said Masashi Murata, currency strategist at Brown Brothers Harriman & Co in Tokyo. "The Fed is getting ready to hike rates, and there is some chance the BoJ will ease further. So this monetary policy divergence should support the dollar/yen in the medium term, maybe this summer," he said.
Against the dollar, the euro was down about 0.1 percent at $1.1311, but its losses were limited by cautious optimism that Greece might be nearing a deal with its creditors and support from higher Bund yields. In contrast, sellers attacked the New Zealand dollar with a vengeance after the Reserve Bank of New Zealand surprised some by cutting interest rates and flagging that more easing was likely. "This virtually assures a follow-up 25-point cut to 3 percent next month and according to our BNZ economist, quite possibly another in September," said Ray Attrill, global co-head of FX strategy at National Australia Bank.
The kiwi shed nearly two full US cents to a five-year low of $0.7010. It was last at 86.56 yen and $0.7024, down 2.4 percent. "We expect 0.7000 to be tested during the day ahead," said Imre Speizer, strategist at Westpac Bank. The Australian dollar rose after a strong jobs report reinforced the case for interest rates to remain steady for a while. The Aussie jumped to a session high of $0.7792, from $0.7720 before the data, and last stood at $0.7766, to show a rise of 0.1 percent on the day. It touched a two-month low under 76 cents last week.
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