The yen firmed against the dollar and euro on Tuesday, boosted by ratings agency Standard & Poor's revised rating outlook for Japan to positive from stable.
The S&P announcement had initially caused a bigger yen rally, which hit the market as the dollar struggled to extend gains from a two-week high scored against the yen on Monday.
"Given developments in Japan over the last 12-18 months and how evident it has become that we're on a more sustainable path of growth in Japan.... I certainly think the rating change is justified," Derek Halpenny, currency economist at BOTM-UFJ, said.
"There's still a lot of speculation going on - there has been talk of US repatriation on selling emerging market equities and other risky positions which will support the dollar from time to time, but ultimately that gives way to this continued strong appetite for selling the dollar," he added.
By 1125 GMT, the yen was up 0.16 percent on the day against the dollar at 111.33 yen, and around a third of a percent higher versus the euro at 143.03 yen.
One-month yen volatility hit its highest levels in nearly two years last week, whilst euro volatility rose to an 11-month peak, with currencies increasingly reacting to moves in other markets such as commodities and equities.
The euro was 0.2 percent weaker against the dollar at $1.2847. Key resistance for the single currency lies at $1.2900, a breach of which could spark a move back up towards last week's one-year highs around $1.2971, Nicole Elliott, technical strategist at Mizuho Corporate Bank in London, said.
The yen was also supported by comments from Bank of Japan Governor Toshihiko Fukui, who was quoted as saying the BoJ will adjust interest rates gradually "so as not to be overly behind the curve".
Fukui's remarks are "one more (signal) that the Bank of Japan is about to hike its rates. We can expect the first move at the July or August BoJ meeting," said Carole Laulhere, currency strategist at Societe Generale in Paris.
On the data front, French consumer spending came in stronger than expected in April, but business confidence was a touch below forecasts in May.
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