The yen rallied on Tuesday after data showed Japan's economy grew more rapidly than expected in the third quarter, keeping the Bank of Japan on track to raise interest rates in the next few months.
Japan's gross domestic product expanded at a 2 percent annual rate in the July-to-September quarter, double forecasts, while growth for the previous quarter was revised up to a 1.5 percent annualised pace from 1.0 percent previously.
Analysts said the surprisingly strong data kept alive the possibility of the BoJ lifting rates to 0.5 percent by the end of the year from 0.25 percent now, even as most market players see the central bank waiting until January or February for a move.
Noriyuki Kato, treasury manager at State Street Global Markets in Tokyo, said the data could mean the yen starts to reverse its long slide as the BoJ prepares to raise rates again, which he expects in December.
"The direction is set, it's just a question of how much the Japanese investment abroad will absorb that," he said, noting the launch this week of several Japanese mutual funds that feature foreign assets.
The dollar slid about half a percent to a low of 117.54 yen before clawing back to around 117.65 yen The euro slipped 0.3 percent to 150.85 yen but stayed in sight of the all-time high of 151.48 yen struck last week. The single currency gained to $1.2825 from around $1.2805.
The GDP data caught market players off guard after a run of weak Japanese economic figures had prompted many to think the data could show a contraction on the quarter. Despite the surprise, the Japanese currency's gains were stymied, showing that yen selling pressure remained intact, some traders said.
"Yen buying momentum won't persist until the market is convinced of successive interest hikes in Japan," said a senior dealer at an European bank. The yen has been dogged, falling to a 21-year low on a trade-weighted and inflation-adjusted basis, as the BoJ is seen moving very slowly in lifting Japan's ultra-low rates while other major central banks have ratcheted rates higher.