The yen fell on Friday to a 10-month low against the euro and below its 200-day moving average versus the dollar, with the greenback likely to push higher if a key US jobs report beats expectations. Speculation grew for a strong reading of non-farm payrolls at 1230 GMT, which would reinforce perceptions an improving US economy would bolster the argument for tighter monetary policy and further widen dollar/yen yield differentials.
That would enhance the yen's appeal as a funding currency of choice amongst investors like hedge funds and model funds, which are increasingly looking to sell the yen and buy high-yielding currencies. These investors are also going long on the dollar/yen pair ahead of the US jobs numbers.
Analysts are forecasting the US economy will add 190,000 jobs in March. The data comes a day after hawkish comments from a US Federal Reserve official gave traders more reason to think the Fed will raise rates before the Bank of Japan. The BOJ is widely expected to lag behind the Fed and the European Central Bank in raising interest rates, especially in the wake of the March 11 earthquake and tsunami that devastated Japan's north-east.
"A strong payrolls number would be reflected in the dollar/yen and it could rise to 84.50 in the short term," said Simon Derrick, head of currency research at Bank of New York Mellon. "We expect to see prolonged yen weakness due to loose monetary and fiscal policy in Japan."
The dollar was up 0.6 percent at 83.65 yen. It touched a six-week high of 83.748 yen on trading platform EBS earlier, and the next major peak on daily charts is its mid-February high of 83.98 yen. Against a basket of currencies, the dollar was up 0.3 percent at 76.115. The dollar rose above its 200-day moving average against the yen at 83.60 yen for the first time since June, suggesting upside potential for the greenback.
The dollar was supported after the Wall Street Journal reported that Minneapolis Federal Reserve President Narayana Kocherlakota signalled the Fed could raise interest rates by 75 basis points by the end of the year. The single European currency rose as high as 118.675 yen on trading platform EBS, the euro's highest against the yen since mid-May 2010. The euro last stood at 118.35 yen, up 0.6 percent on the day. The euro was slightly lower against the dollar at $1.4157, barely reacting to an extraordinary issue of 2012 bonds by Portugal. Talk of sovereign demand at $1.4140-50 and at $1.4125-30 put a base under the single currency.