The yen edged up to its strongest level against the dollar in nine days on Thursday ahead of trade talks between the United States and Japan and speculation over when the Japanese central bank will exit its ultra-easy monetary policy.
Elsewhere in the currency market, the New Zealand dollar slid as its central bank staked out a dovish policy.
While markets are still on edge over the brewing trade war between the United States and China, traders expected the main event on Thursday to take place in Washington, where Japan will enter talks seeking to avert steep tariffs on its car exports and fend off U.S. demands for a bilateral free trade agreement.
The yen has fallen about 4 percent against the dollar over the past six months, raising speculation that its depreciation could be an issue in the talks as the Trump administration has raised concerns over countries deliberately weakening their currencies.
The yen had received a lift on Wednesday following the release of minutes from a July 30-31 BOJ board meeting that showed one member wanted to allow long-term yields to move in an even wider band than the range indicated by the central bank.
In order to makes its easy policy more sustainable, the BOJ had tweaked its yield-curve control (YCC) scheme -under which it guides long-term rates around zero percent- and decided to allow the yield to move about 20 basis points on either side of the target.
Some saw last week’s policy tweak as a message of quiet surrender by the BOJ, an admission that it couldn’t stoke inflation and walking back steps intended to do so.
“The yen-buying trend has been gathering pace since early August and the moves generated on the latest BOJ news added further momentum,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.
The speculation about the timing of an eventual exit from the BOJ’s ultra easy policy stance, along with caution ahead of the trade talks, led to the Japanese currency strengthening to 110.74 yen to the dollar, its strongest in nine days.
“It is a continuation of the unwinding of short positions made previously against the yen. But it still remains to be seen if there will be participants willing to begin going long on the yen once the short covering peters out,” said Koji Fukaya, president of FPG Securities in Tokyo.
A big mover in the G10 currency sphere was the New Zealand dollar, which fell more than 1 percent at $0.6665, its lowest since March 2016.
The kiwi tumbled after the Reserve Bank of New Zealand (RBNZ) on Thursday unexpectedly committed to keep interest rates at record lows through to 2020 on disappointing economic activity, a dovish turn that caught markets off-guard.
RBNZ Governor Adrian Orr told Reuters in an interview that the central bank will need to make sure it is “blowing wind into sails” of the country’s economy for some time yet.
Its antipodean peer the Australian dollar fared better, last trading up 0.2 percent to $0.7449.
The Aussie had risen for the past two sessions, supported in part as a recent retreat by the Chinese yuan stopped for the time being.
Sterling was little changed at $1.2877 following a drop to $1.2854 the previous day, its lowest in a year. Against the yen, it slipped to an 11-month low of 142.34.
The pound slumped on Wednesday as investors ramped up bets on Britain leaving the European Union without an agreement with Brussels on their future relationship.
The euro was a shade higher at $1.1616 after gaining about 0.1 percent on Wednesday. The single currency extended overnight losses to trade at 128.625 yen for a loss of 0.15 percent.
The Russian ruble retreated to its lowest since November 2016 overnight, weakening beyond the psychologically important 65 per dollar threshold, after Washington said it would impose fresh sanctions on Moscow.