The dollar crept higher on Thursday, extending gains as investors look ahead to next week's Federal Reserve meeting for clues about how much higher interest rate will climb.
Tokyo traders cited offshore funds buying both dollars and the euro against the yen, but said that overall the market was lacking a clear direction, with activity already winding down ahead of the two-day Fed meeting that ends on Tuesday.
"We're still seeing a bit of a retracement after the dollar's weakness last week." said Noriyuki Kato, treasury manager at State Street in Tokyo.
"But on the whole we're stuck right in the middle of the recent ranges. people are waiting until we get a bit more clarity from the Fed."
This week the dollar has bounced back against major currencies as investors took upbeat comments on the economy and housing market from Fed Chairman Ben Bernanke as a sign that rates could rise beyond next week's expected increase.
Only last week the dollar had fallen sharply after soft inflation data suggested to some that the Fed may be close to ending its tightening campaign.
The central bank is almost unanimously seen lifting rates to 4.75 percent from 4.5 percent on Tuesday, but the big question is whether the central bank will raise rates to 5 percent or higher at meetings in May and June.
With the European Central Bank also poised to raise rates further from 2.5 percent and the Bank of Japan expected to lift them from zero by year-end, market players have become extra sensitive to shifts in the outlook for Fed credit tightening.
"The expectations are fluctuating day by day, so there's no clear direction at the moment," said Masafumi Yamamoto, currency strategist at Nikko Citigroup.
The dollar edged up to 117.15 yen from near 117 yen in late New York trade but remained stuck in the broad range between 115.50 yen and 119.50 yen that it has moved in over the past two months.
The euro weakened to $1.2060 from around $1.2080 but has been unable to break decisively out of a $1.18 to $1.23 range for all of this year.
Against a trade-weighted basket of six major currencies the dollar was up for a fourth straight session.
BoJ Policy Board member Shin Nakahara said on Thursday that caution was needed over the risk of deflation returning in Japan, and that the economy still needed very easy monetary conditions.
Nakahara is widely seen as one of the most dovish on the BoJ's board and is suspected of being the lone dissenter against ending quantitative easing two weeks ago.
After the BoJ scrapped its ultra-loose policy of flooding the banking system with cash, investors see the central bank lifting rates to 0.25 percent or 0.5 percent by year-end, what would be the first such move since August 2000.
But the BoJ has said it will keep rates low for a while, especially if inflation stays mild. The yen has been dogged by its low yields as short-term rates march higher in other countries.
Elsewhere, the New Zealand dollar rebounded from 21-month lows after data showed the country's current account deficit came in at NZ$3.38 billion in the fourth quarter, less than forecasts.
The kiwi rose as high as $0.6294 before settling back to $0.6250, pulling away from a low of $0.6178 struck the previous session.
The New Zealand dollar has tumbled nearly 10 percent this year on mounting worries that an economic slowdown will prompt the Reserve Bank of New Zealand to cut rates later this year from 7.25 percent, the highest in the developed world.
Investors will scour data on US home sales in the next two days, given that a cooling of the once red-hot housing market could slow the US economy and accelerate an end to the Fed's tightening policy.
Sales of existing homes, due at 1500 GMT, are forecast to ease to a 6.5 million annual pace in February from 6.56 million the previous month, what would be the slowest pace in two years.
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