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TOKYO: The Australian dollar slipped towards a 10-year trough while the yen hovered off its lows on Friday, as renewed hope that China and the United States could get their negotiations back on track began to fade.

The U.S. currency was also supported by investors' month-end rebalancing needs, which has helped lift the dollar index to its highest level in a month.

The index is last up 0.1% at 98.555.

The Australian dollar, often seen as a proxy bet on the Chinese economy, fell 0.31% to $0.67095, about a third of a cent above its 10-year low of $0.66775 hit on Aug. 7.

Adding to the Aussie's woes, the country's building approvals unexpectedly plunged to a six-year low.

The New Zealand dollar dropped 0.30% to a four-year low of $0.6290. It is the worst performing G10 currency this month with a fall of 4.1%.

The yen held flat at 106.49 per dollar, off this week's low of 106.68 hit the previous day.

Risk assets got a mild lift on Thursday after China's commerce ministry said Beijing and Washington were discussing the next round of face-to-face talks in September, but the effect was short-lived.

Washington is due to start imposing 15% tariffs on $125 billion worth of goods from China on Sunday, affecting a vast number of consumer items from smart speakers to sneakers.

Investors fear the intensifying trade dispute could lead the U.S. economy into a recession, a scenario that has become more of a reality this week after the U.S. bond yield curve inverted, a highly reliable indicator of a recession.

"The talking point is still the U.S. yield curve inversion and whether the U.S. economy heads into a recession...In short, the atmosphere is not so good," said Bart Wakabayashi, Tokyo branch manager of State Street.

In addition, political risks from the UK to Hong Kong and the Middle East added to risks for the global economy and kept many investors on edge.

Despite the dollar's rebound against the yen this week, the Japanese currency is the best performer among major currencies this month, rising 2.2% so far.

The second best was the Swiss franc, which has gained 0.7% so far this month, to 0.9879 per dollar.

"There are so many geopolitical risk factors now. Not to mention U.S.-China trade conflicts, we have Brexit, Hong Kong and the Middle East. So we should expect the yen to jump from time to time," said Minori Uchida, chief currency analyst at MUFG Bank.

The euro eased 0.12% to $1.1043, near a four-week low of $1.1042 touched on Thursday, hurt by a sluggish euro zone economy and likely monetary easing from the European Central Bank (ECB) next month.

Christine Lagarde, the ECB's next president, said on Thursday the central bank still has room to cut interest rates if needed, although this may pose financial stability risk.

German inflation slowed in August and unemployment rose, data showed on Thursday, adding to signs that Europe's largest economy is running out of steam and cementing expectations of a new ECB stimulus package next month.

Sterling traded at $1.2183, on course to post its first weekly loss in three weeks on growing worries about a no-deal Brexit at the end of October.

British Prime Minister Boris Johnson suspended parliament for more than a month to dodge a possible no-confidence vote and take Britain out of the European Union on the Oct. 31 deadline.

Copyright Reuters, 2019