The safe-haven yen was on the back foot on Friday, as risk assets staged a broad recovery and investors awaited a press conference by the head of the Bank of Japan after the central bank held policy steady. The dollar added about 0.4 percent against the yen to buy 119.27 yen, while the euro rose about 0.3 percent to 146.44 yen. "The focus still remains on broader risk appetite, the continued fall in commodity prices, in particular oil, and the divergent monetary policies of the major central banks," said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong.
The BOJ kept monetary settings unchanged, as widely expected, at the end of its two-day meeting on Friday and offered a more upbeat view on the economy, signalling that no immediate expansion of stimulus was on the horizon. BOJ Governor Haruhiko Kuroda will hold a news conference at 3:30 pm (0630 GMT) to explain the policy decision. He will likely repeat calls for firms to increase wages, as well as urge Prime Minister Shinzo Abe to press ahead with fiscal and structural reforms.
Investors will be particularly interested in anything Kuroda says about the yen and oil prices, Sean Callow, a currency strategist at Westpac, said in a note. Diverging monetary policy between the US and Japan are expected to continue bolstering the dollar against the yen, as Japan keeps its stimulus in place and the US Federal Reserve gears up for an eventual tightening.
On Wednesday, the Fed removed its pledge to keep rates near zero for a "considerable time," signalling its confidence in the US economic recovery and keeping it on the path to hike interest rates in 2015. The Fed's stance fuelled gains in US stocks, giving the S&P 500 its best two-day advance in three years, which in turn helped lift Asian shares. The Swiss franc, which plunged on Thursday after Switzerland's central bank surprised by imposing negative interest rates on deposits, stabilised at 0.9810 franc against the dollar, up about 0.1 percent on the day.
The euro edged down against the dollar to $1.2279. French President Francois Hollande said on Friday that he would like to see the euro weaker against the dollar but added that the exchange rate was rapidly approaching a point of balance. Hollande was attending a meeting of European Union leaders in Brussels, where they endorsed a new investment programme intended to kick-start economic growth in the bloc. The US dollar index, which tracks the greenback against a basket of six major currencies, edged up about 0.1 percent on the day to 89.288, within sight of the December 8 high of 89.550, a five-year peak.