The dollar neared a 1-1/2-month high against the yen on Friday, as an improvement in investor risk appetite buoyed equities and pushed US yields significantly higher. The dollar was steady at 107.385 yen after gaining more than 0.5 percent overnight. A rise above 107.490 yen would take it to its highest since late February. The greenback has gained about 0.3 percent versus the yen this week.
Equities were boosted as Wall Street gained on Thursday in anticipation of strong corporate earnings, and as geopolitical worries eased on US President Donald Trump's suggestion that a military strike on Syria may not be imminent. The dollar had slipped against the yen, a perceived safe-haven, earlier in the week as US-China trade tensions and the possibility of a US-led missile strike on Syria roiled the broader financial markets.
"Some of the moves driven by risk aversion that lifted the yen are being unwound. But while risks facing the market may have softened, they have not gone away," said Shin Kadota, senior strategist at Barclays in Tokyo.
For now the US currency was supported by higher Treasury yields, with that of the 10-year surging 5 basis points overnight to its highest since late March. "The dollar had not shown a strong correlation with US yields recently. But the correlation returned somewhat, with currencies taking notice of such a spike in yields," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.
"Risk aversion in equities will need to keep receding for the dollar to remain supported. There is no change to the equation of 'Trump risk' dictating market direction." The dollar index against a basket of six major currencies was a shade higher at 89.778. It rose 0.2 percent the previous day, ending a four-day losing streak.
The euro was little changed at $1.2328 after losing 0.3 percent the previous day, when it ended a four-day winning run.
The common currency has risen 0.4 percent this week, supported by comments from European Central bank officials that reinforced expectations towards monetary policy normalisation. The Swiss franc, a perceived safe haven currency, was little changed at 0.9534 per dollar after losing 0.5 percent overnight.
The Australian dollar, sensitive to shifts in risk sentiment, rose 0.3 percent to $0.7777 while the New Zealand dollar was nearly flat at $0.7378.
The Singapore dollar rose slightly in response to the city-state central bank's first tightening in six years, before giving up its gains, as the move was well anticipated. The currency was little changed at 1.3122 per dollar.
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