Uncertainty ahead of Group of Seven and key emerging nation meetings next week kept major currencies locked in narrow ranges on Friday, with speculation over China's yuan policy taking centre stage. The yen had fluctuated sharply in Asian trade as comments from Chinese central bank officials stirred talk on whether or not China would revalue its pegged yuan currency after the G7 meeting of industrialised in London on February 4/5.
"We had wild swings overnight, which left people a bit confused. London has taken a bit of a back seat," said Lee Ferridge, senior proprietary trader at Rabobank.
"We've got US GDP numbers that might give some direction but as we go into next week it will be about G7 and the Chinese issue."
By 1240 GMT, the dollar was at 103.27 yen after falling to 102.38 yen earlier in the day. The euro was slightly higher on the day at 134.63 yen.
The euro was virtually unchanged against the dollar, standing at $1.3031, in the middle of recent ranges.
Investors are looking to US growth data for the last three months of 2004 due at 1330 GMT for clues on inflation and the interest rate outlook. The economy is forecast to have expanded 3.5 percent compared with 4.0 percent in the third quarter.
The Japanese currency hit a 1-1/2 week high after a monetary policy committee member of the Chinese central bank said in Switzerland the time was ripe for China to move towards a more flexible foreign exchange regime.
The yen then erased gains after another central bank official in Beijing said China would keep the yuan basically stable.
In the run-up to the G7 meeting, European policymakers have been urging Asia to let their currencies rise to share the burden of dollar weakness. China has resisted pressure for revaluation, saying more work needs to be done before changing the policy.
Next week will also see the US central bank meet to decide interest rates and the release of closely watched data on the US labour market.
"Next week will probably be the biggest week in the FX markets in the last 12 months," said Adam Myers, foreign exchange strategist at Societe Generale.
Yu Yongding, economist at the Chinese Academy of Social Science, said in Davos the switch from the pegged yuan would also help a necessary shift away from an export-driven growth model.
He stressed his views were personal and that they did not reflect either the government or central bank policy.
Comments from Chinese officials in recent days have sparked a rash of knee-jerk buying and selling of the yen, used as a proxy for Asian currency speculation.
Apart from speculation over China, some analysts are sceptical that anything new would come out from the G7 meeting in London which starts on Friday next week.
"We are not going to see a substantial change in the statement next Saturday but I think there will be something significant. They could infer a timetable going ahead for a relaxation (of the yuan)," said Myers.
Germany's deputy finance minister Caio Koch-Weser told Reuters on Thursday markets should not have excessive expectations.