The yen hit a one-month high against the dollar on Tuesday after the Bank of Japan opted not to loosen monetary policy further, and the currency looked likely to hold its gains in the near term as concerns about US growth weigh on Treasury yields. The euro sank to a one-month low versus the yen and hovered near a one-month trough against the dollar on growing concerns about euro zone sovereign debt problems.
Analysts said further rises in Spanish and Italian bond yields could weaken the single currency further. The dollar was last down 0.4 percent against the yen at 81.16 yen, having earlier slipped to 81.05, its lowest since early March. The euro was down 0.6 percent at 106.20 yen, near an earlier low of 105.97 yen. The safe-haven yen gained after the Bank of Japan held off from taking any new steps at Tuesday's meeting ahead of a more thorough assessment of the economy later this month.
This helped the yen add to its gains against the US dollar 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 has dampened US Treasury yields, which surged last month on tentative hopes of improving US growth, denting the allure of the dollar.
"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. He said Morgan Stanley was looking for a move back to about 80 yen. However, analysts said the yen's gains are likely to 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. The euro fell 0.2 percent versus the dollar to $1.3074, 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 $1.3065.
A break below $1.3033 would leave it on course to test a reported options barrier at $1.30, traders said. Spanish and Italian yields spreads over German Bunds widened, weighing on the single currency, as the US jobs numbers increased concerns about the impact a weaker US economy may have on euro zone growth, especially in the region's weaker economies.
The growth-correlated Australian dollar dipped 0.2 percent to US $1.0284. 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.