The yen stayed near a 4-year low against the dollar on Tuesday as soft Japanese economic data raised further doubts about whether the Bank of Japan will lift interest rates next month.
The greenback was supported before a two-day US Federal Reserve policy meeting starts later in the day, with investors looking for clues in any post-meeting statement on Wednesday about whether the US central bank has become more optimistic on the economy after a raft of strong data.
A surprisingly big 1.9 percent slide in Japanese household spending in December added to a run of tepid figures on consumption that had prompted the BOJ to hold rates steady this month at 0.25 percent.
"The dollar/yen focus is still very much an interest rate story, with people taking out (expectations of) US rate declines and also removing some Japanese rate (hike) expectations in the short term," said Adrian Schmidt, currency strategist at RBS Financial Markets.
However some investors were reluctant to push the Japanese currency to new lows ahead of a February 9-10 meeting of Group of Seven finance ministers and central bankers which could yield some comments against the yen's weakness. The dollar was up 0.1 percent on the day at 121.87 yen, near Monday's four-year peak of 122.19 yen.
The euro was up 0.1 percent at 157.96 yen, not far from a record high of 158.61 struck last week. The euro was flat at $1.2956, having been stuck between $1.2865 and $1.3045 for the past two weeks.
Analysts said range trading was likely to continue on euro/dollar for the rest of the day ahead of Wednesday's euro zone January inflation data, US fourth quarter growth figures and the outcome of the Fed meeting.
The dollar has rebounded against other major currencies as mounting signs of strength in the US economy convince investors the Fed is less likely to cut rates this year.
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