The yen inched higher against the dollar after the Bank of Japan refrained from more easing on Tuesday, although many thought it would stay under pressure on expectation Tokyo would loosen policy later in April. The yen was also sold by Japanese importers, traders said, whose purchases of fossil fuels have jumped as all but one of Japan's nuclear reactors have gone off line in the wake of the Fukushima nuclear disaster in March 2011
With the economy still fragile and consumer inflation around zero, the pressure for more stimulus in Japan has not waned despite February's surprise easing, which helped the yen weaken more than 6 percent this year. Hopes that the BoJ would take further easing steps when it issues economic outlook and price forecasts on April 27, helped the yen pull away from a one-month high against the dollar of 81.19 hit on Monday after weak US jobs data.
"The market is expecting further easing from the BoJ at some point in April, and this is keeping the yen broadly under pressure," said Koji Fukaya, chief currency strategist in Credit Suisse in Tokyo. The yen hit the session low of 81.87 early in the session, to subsequently bounce off the trough after the BoJ decision and last trade at 81.41, 0.1 percent above late New York levels.
Fukaya said the yen's long-term weakening trend was confirmed on Monday after the dollar failed to dip below support at 81.07, a 38.2 percent retracement of the dollar's rally since February. To be sure, few market participants think that the yen could sustain the eye-watering pace of losses that helped fuel nearly 14-percent gains in Japanese stocks this year, as it remains vulnerable to bouts of short-covering.
Yen net shorts stood at 65,108 contracts in the week ended April 3, near the previous week's 67,622 contracts, which was the biggest net short position since July 2007 As the yen rose across the board after the BoJ's decision, the euro pulled away from session highs at 107.48 yen to last stand flat at 106.80, with some traders earlier citing stop-loss buying in the pair triggered by US banks.
Chartists saw resistance for the euro emerging around 108.20, at the 38.2 percent retracement of its March-April fall, while the top of the Ichimoku cloud, at 106.20 on Tuesday, is an initial support after it held the previous session. The euro was a shade stronger against the dollar, gaining 0.1 percent to $1.3120 and moving further away from a one-month low of $1.3033 hit on Monday.
A break of Thursday's $1.3165 high would see it target the top of the Ichimoku cloud at $1.3263, traders said. "The market, as always, is holding out hopes that the Fed will do more to boost output if required," said David Scutt, a trader at Arab Bank Australia. The Aussie was supported at $1.0307 after China recorded a $5.35 billion trade surplus in March as exports grew faster than expected, customs data showed on Tuesday.
Worries about China lingered after data showed imports grew 5.3 percent from a year ago, far below a 9 percent increase forecast, which also pushed copper and oil lower on worries about demand outlook for the leading importer of raw materials. The Aussie struggled to decisively pull away from a three-month low of 1.0243 hit last week, weighed down by soft local data, lingering fears about a hard landing in China and expectations for a cut in domestic rates next month.