The dollar fell to a one-month low against the Japanese yen on Friday amid growing speculation that China could soon revalue the yuan, a move expected to lift other Asian currencies. The Japanese yen has been bolstered since Thursday by comments from Federal Reserve chief Alan Greenspan, who joined a chorus of US officials calling for China to relax its currency's peg to the dollar. "The theme of yesterday carried over to today: Greenspan's China talk," said Ronald Simpson, managing director of global currency analysis, Action Economics LLC, New York.
The dollar dipped against the Swiss franc in late trade as US stocks dropped after the Wall Street Journal reported on its Web site that the US has warned China that North Korea could be preparing for a nuclear-weapons test.
On that report, "the dollar fell, bonds rose and stocks fell out of bed," Simpson said.
The dollar hit a one-month low of 105.76 yen
according to Reuters data, the biggest one-day percentage drop in two months, before trading at 105.99 late in New York, down 0.8 percent from late Thursday.
The euro fell to a three-week low against the yen around 138.12 yen, its biggest one day fall in a month.
The yen also got a lift from Japanese Prime Minister Junichiro Koizumi's apology for Japan's World War Two atrocities. He said he would meet his Chinese counterpart in a bid to repair ties that are at their worst in more than three decades. "China is the topic of the day with speculation they will revalue sooner rather than later," said Bill Hoerter, chief dealer at Alaron Foreign Exchange in Chicago. "Koizumi probably helped take a little of the bitter taste out, which also aided the yen."
Any revaluation of the Chinese yuan, which is pegged in a narrow band around 8.28 yuan per dollar - and undervalued, according to most analysts - would likely boost currencies of China's Asian trading partners, including Japan.
Speculation that China would soon allow its currency to move more freely intensified this week after faster-than-expected first-quarter economic growth of 9.5 percent put pressure on Beijing to rein in breakneck growth.
The premium on one-year yuan non-deliverable forwards, derivatives used by the foreign exchange investors to bet on a change in the value on China's currency, were at the year's high, factoring in a 5.5 percent gain on the yuan in 12 months.
Citigroup currency strategist Marvin Barth on Friday reiterated the bank's forecast of a 3 percent widening in the yuan's current trading band over the next three months. Some investors said the rally in yen following Greenspan's comments may be too far, too fast given that China has not indicated it is willing to act simply at the behest of other nations.
A move by China is unlikely to happen before the fourth quarter at the earliest, BNP Paribas said in research note.
Investors were also anticipating a report from the US Treasury in the next several weeks, which some speculate could name China as a currency manipulator.