The dollar retreated on Thursday, undermined by the yen's broad rally amid a surge in Japanese equity inflows and the Bank of Japan's seeming absence from the marketplace, analyst said.
Japanese officials have warned they would act against sudden currency moves but speculation Japan is scaling back its massive intervention to suppress the appreciating yen against the dollar helped the Japanese currency rise for the fourth consecutive day.
Positive US economic data caused a brief, moderate rise in the dollar against the euro, as markets focused on the yen's price movement across the board.
The Producer Price Index, which measures prices paid to farms and refineries, climbed to a steeper-than-expected 0.6 percent in January after a 0.2 percent gain in December. Markets were expecting a 0.4 percent rise.
"The PPI numbers suggest there may be more inflation ...than previously expected," said Michael Woolfolk, senior currency strategist at Bank of New York.
"This is expected to filter through to CPI and will definitely be on the Fed's radar. This may mean that the Fed can begin removing its accommodative stance sooner than expected. This is positive for the dollar because it will remove the interest rate differential," he added.
US initial jobless claims fell to 336,000 in the week ended March 13, well below the market's forecast of 345,000. While this is the lowest level in more than three years, analysts wondered when the improvement in this data is going to be reflected in the non-farm payrolls report.
In morning New York trade, the dollar fell to a one-month low of 106.62 yen before trading back up to 106.90, down over 1 percent.
The euro also fell sharply against the yen, dropping to a six-week trough of 130.82 yen but traded back up to 131.49 yen.
Against the dollar, the euro rose to $1.2294 benefiting from the greenback's losses versus the yen, though the euro remained stuck in the broad range it has adopted since hitting a record high at $1.2927 in mid-February. Sterling was trading firmer at $1.8263.
The Nikkei stock average hit its highest in nearly two years and data showed overseas investors continued their buying spree of Japanese stocks last week, while Japanese investors stepped up repatriation of their overseas investments last week ahead of their March 31 book-closings.
"Everybody is speculating whether the Bank of Japan has stopped intervening and looking at the movement in dollar/yen since Monday you would think so - or at least it hasn't been intervening this week," said Niels Christensen, currency strategist at Societe Generale.
"With the strong performance of the Nikkei, Japanese and foreign investors are moving more funds back to Japan."
Also, the European Central Bank (ECB), in its regular twice-monthly council meeting in Frankfurt on Thursday, made no statement on interest rates. Analysts said this was not surprising since monetary policy was not expected to be on the agenda.
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