LONDON: The yen hit a one-month high against the dollar on Tuesday after the Bank of Japan refrained from loosening monetary policy further, and it looked likely to hold gains in the near term as concerns about US growth weigh on Treasury yields.
The yen also rose to a one-month peak versus the euro, with the shared currency vulnerable to a resurgence of concern over sovereign debt. Analysts said any rise in Spanish and Italian bond yields could weaken the euro further.
The dollar was last down 0.4 percent against the yen at 81.17 yen, paring losses from earlier in the session when it slipped to 81.05 yen, its lowest level since early March.
"Even looking beyond the BoJ and Japanese policy, the global environment suggests dollar/yen will stay under pressure," said Ian Stannard, head of European FX strategy at Morgan Stanley.
"The overall trend is going to be dominated by the global bond market and we will be looking for a move back into the 80 yen area."
The dollar has been under pressure against the safe haven yen since Friday when weaker-than-expected US payrolls fuelled speculation the Federal Reserve may consider another round of quantitative easing to boost growth.
Such speculation weighs on Treasury yields, which surged last month on tentative hopes of improving US growth and after a surprise easing of monetary policy by the BoJ in February.
The Bank of Japan held off any new steps at Tuesday's meeting to help meet its new inflation target and boost activity ahead of a more thorough assessment of the economy later this month.
Despite that, some analysts said the yen's gains this week could be capped by speculation of further stimulus from the BoJ when it issues new forecasts on the economy on April 27. Japanese growth is still fragile and consumer inflation around zero.
As the yen rose broadly after the BOJ decision, the euro retreated from session highs at 107.478 yen to hit a trough of 105.97 yen. Some traders earlier cited stop-loss buying in the pair triggered by US banks.
Morgan Stanley's Stannard said the euro could move significantly lower against the yen given rising euro zone debt concerns and he would look for a move into the 102 yen area.
SPANISH, ITALIAN YIELDS RISE
The euro fell 0.2 percent versus the dollar to $1.3076, within sight of a one-month low of $1.3033 hit on Monday. Stop loss selling was reported around $1.3090 and market players cited more stops below $1.3064.
Both Spanish and Italian yields spreads over Bunds widened in early European trade, extending moves from last week when the US jobs numbers added to concerns about the global economic outlook.
Spanish bonds have also come under pressure recently as investors fretted Spain could be the next source of contagion in the euro zone due to its weak fiscal position.
Better-than-expected German trade data failed to provide the euro with much support as investors remained focused on underperformance in the periphery.
"The market is looking at Europe and saying there is a recession in some economies. Germany is doing quite well but is being dragged down by the others," said Gavin Friend, currency analyst at National Australia Bank.
"Euro/dollar looks to be moving down through $1.30 and I think it will be in a new $1.29 to $1.3250 range."
The growth-correlated Australian dollar dipped 0.2 percent to US$1.0276. It struggled to pull away from a three-month low of US$1.0243 hit last week, weighed down by soft local data, lingering concerns about a hard landing for the Chinese economy - a key Australian export market - and expectations for a cut in domestic rates next month.
Data showing China recorded a $5.35 billion trade surplus in March as exports grew faster than expected provided some support. Monday's high inflation reading of 3.6 percent also dealt a blow to hopes for more domestic stimulus for the Chinese economy.
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