The dollar edged lower on Tuesday in light, mostly technical trading in the absence of key US economic data, but traders kept an eye on the yen after it weakened the previous day. Volume was thin ahead of the US Thanksgiving holiday on Thursday.
A so-called carry trade, in which investors borrow in low-yielding currencies, particularly the yen, to invest in high-yielding ones, showed no signs of slowing.
"We saw a bounce in euro/yen this morning, which signals that the yen carry trade is still strong," said Shaun Osborne, chief currency strategist at TD Securities in Toronto. The low-yielding yen has been under pressure, with investors selling it for higher-yielding currencies because the Bank of Japan is expected to raise interest rates only gradually.
That view was strengthened by the minutes from the BoJ's October 12-13 meeting, which were released on Tuesday. "We're expecting some signals that the Bank of Japan is a little bit more concerned that growth is perhaps slowing down," Osborne said. "This could be a strike against expectations of a quick rate hike by the BoJ."
By late afternoon in New York, the euro was steady at 151.34 yen, just below Monday's record high of around 151.68 yen, according to Reuters data. The dollar edged lower against the yen at 117.85 yen as the White House lowered its forecast for US economic growth this year and next, saying the economy is moderating.
Analysts and traders also said the dollar came under pressure earlier in the afternoon on speculation that the October unemployment rate could be revised higher. The talk died down after Tom Nardone, an assistant commissioner at the US Bureau of Labour Statistics, dismissed the rumour.
Richard Franulovich, a senior currency strategist at Westpac Banking Corp in New York, said the combination of lower trading volumes and speculation about the unemployment revision weighed on the US currency.
"We had the White House lowering its growth forecast and some rumours about a revision on the unemployment rate pressuring the dollar a bit," he said. "But let's face it, it's an extremely thin market ahead of the holiday, and any rumour could drag the currency."
The yen fell on Monday after a weekend meeting of the Group of 20 economic powers in Australia yielded few comments on the yen's weakness or on carry trades. Some analysts said the build-up of short positions in the yen - in which investors bet the currency, will drop - potentially left it vulnerable to a sharp correction.
The biggest mover against the yen after the G20 meetings has been the New Zealand dollar - the highest-yielding currency among the most liquid currencies in the world.
On Tuesday, the kiwi dollar was down 0.1 percent against the yen at 79.01 yen after rising 1 percent the day before. Against the US dollar, the New Zealand dollar was flat at US $0.6707. The euro also was slightly higher against the dollar at $1.2845.
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