The yen pulled away from two-week lows against the dollar on Friday on safe-haven bids after news that a doctor had tested positive for the Ebola virus in New York City after returning from West Africa. The first confirmed case in the city worried investors because of the possible repercussions in the global financial centre, although some said the market focus could soon shift.
"The volatile move was a good chance for some to buy the dollar on dips," said Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm. "I think, next week the market will be more event-driven, with the FOMC and the Bank of Japan, so the downside should be limited," he said, adding that dollar support at 107 yen was likely to hold for now.
The greenback was about 0.3 percent lower at 107.98 yen after earlier dropping as low as 107.86. S&P e-mini futures were off their lows but still down 0.3 percent. Adding to the cautious mood, Chinese home prices fell for a fifth straight month in September, wiping out a year's gains and raising expectations the government would have to add stimulus to cushion the blow to the economy.
The US Federal Reserve will meet next Tuesday and Wednesday, and the consensus view is that the central bank will decide to wrap up its asset purchases under its third round of quantitative easing. The BOJ appears set to resist pressure for more stimulus measures or to accept that its inflation target is unrealistically high at its next policy meeting on October 31, people familiar with its deliberations have told Reuters.
The yen had faced overnight pressure after a Wall Street Journal report sparked talk of more easing from the Bank of Japan. The article, citing people familiar with the central bank's thinking, said the BOJ saw "a much bigger possibility of inflation slipping below 1 percent" due to falling oil prices. "We still see a stronger dollar, and weaker yen," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo. "We don't expect additional easing from the BOJ, and the US economy remains steady, and the US Fed is likely to hike US rates in 2015, so we have not changed our basic scenario."
The yen also faced pressure on Thursday from a Wall Street rally, as upbeat earnings from the likes of Caterpillar and 3M helped drive US stocks to a two-week high. That in turn lifted US Treasury yields.
Higher yields usually have the effect of boosting the greenback against the yen, and it duly climbed as high as 108.36 yen overnight, gaining more than 1 percent on Thursday. But the yield on benchmark 10-year notes slipped to 2.246 percent in Asian trade after the Ebola news, compared to Thursday's US close of 2.277 percent. The euro fetched 136.72 yen, down about 0.1 percent, having briefly popped above 137.00 overnight for the first time since October 10.
The Australian dollar dipped about 0.2 percent to 94.65 yen after coming within a whisker of 95.00 yen overnight, reaching a high last seen on October 9. Against the US dollar, the euro edged up about 0.1 percent to $1.2661 after dipping to a two-week low of $1.2614 on Thursday. Investors are likely to be cautious ahead of parliamentary election in Ukraine on Sunday, as well as that day's release of the European Central Bank's stress test results on the euro zone's 130 biggest banks.
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