The yen retreated broadly on Friday after posting gains this week, weighed by warnings overnight from Japan's finance minister of possible intervention by the government to weaken the currency. Gains in global stock markets and oil prices also bolstered the market's appetite for risk, diminishing the appeal of the safe-haven yen.
The yen surged as much as 2 percent against the dollar on Thursday. Japanese Finance Minister Taro Aso responded early on Friday by warning that rapid currency moves were "undesirable," and the yen's moves were "one-sided." That is language that Tokyo has used in the past to flag intervention. The yen has rallied to 17-month highs against the dollar, but investors expect Japanese policy makers to hold fire on a rate decision at least until after next week's G20 meetings in Washington.
"The speed of the yen's move is going to be more important than levels when it comes to intervention," said Alan Ruskin, global head of FX strategy at Deutsche Bank in New York. "Dollar/yen at 105 yen is still well above medium-term valuation estimates where the yen can be seen as expensive. The much more solid justification for intervention that Japan can make ... is that the speed of the move is disruptive to the Japanese economy and perhaps the global economy." In late trading, the dollar fell 0.1 percent against the yen to 108.26 yen. This week, the dollar has fallen 3.0 percent, its worst weekly performance since mid-February.
So far this year, the yen has gained more than 11 percent versus the dollar, on pace for its strongest yearly gain in six years. The dollar was down 0.3 percent against a basket of currencies, trading at 94.231, as the greenback slipped versus the Swiss franc to 0.9538 franc and fell against the Canadian dollar to C$1.2988. A Reuters poll of strategists showed on Thursday that the broader dollar rally that began in mid-2014 has nearly run its course and will only pick up slightly over the coming year.
The euro, meanwhile, rose 0.2 percent against the dollar to $1.1398. On Thursday, Federal Reserve Chair Janet Yellen said the Fed was on course to tighten rates gradually, which gave the dollar some relief. Yellen's statement last week that the Fed should proceed cautiously in light of looming global risks to the US economy has been at the heart of sharp falls over the past 10 days for the dollar against the euro and yen.
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