The Japanese yen slid more than one percent against the dollar on Tuesday after China suggested a revaluation of its pegged currency may be further away than some had expected. In an interview with Reuters, a senior Chinese official said the country needed more time to prepare for currency flexibility, dimming speculation it may let its currency rise after next week's Group of Seven meeting.
"The latest comments from China suggest a revaluation is not likely anytime soon," said Lena Komileva, global economist at Prebon Marshall Yamane in London. "People who bought the yen on the view that China would revalue are now unwinding their positions."
Finance ministers and central bankers from the Group of Seven rich countries are expected to discuss the issue of currency flexibility when they meet in London at the end of next week. China and India have also been invited to attend the meeting as observers.
At 1250 GMT, the dollar was up just over one percent at 103.66 yen, while the euro was 0.8 percent firmer at 135.05 yen . The euro was a touch weaker against the dollar at $1.3030.
News Italian consumer confidence fell for a third month running in January had little market impact as dealers waited for the more important Ifo survey of German business confidence on Wednesday. US consumer confidence data is due at 1500 GMT.
The comments from China came after German Finance Minister Hans Eichel said on Monday he hoped Asia would do more to promote flexible exchange rates.
Most analysts believe a more freely-floating yuan would gain in value because of the world's demand for Chinese exports and the broad downward pressure on the US dollar.
This belief has led investors to buy the Japanese yen as a proxy for future yuan moves.
"Given the timing, this seems to be a pretty obvious message from China to 'lay off pressuring us on the yuan at the G7'," said Mitsuru Sahara, vice president of forex dealing at UFJ Bank.
"It's looking more and more like the G7 will be a non-event and the yuan revaluation is further away than we thought."
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