The yen fell broadly on Friday, posting sharp losses against high-yielding currencies as rising global interest rates prompted Japanese investors to dump the yen and buy more foreign assets.
The yen slipped even as a spike in bond yields pushed most stock markets in Asia down more than 1 percent, and traders were bracing for a yen recovery if investors cut back in risky positions like carry trades on a further drop in European shares.
But analysts said any yen gains would likely be brief as many investors keep using the currency as a cheap source of funds to buy higher-yielding currencies in the carry trade, which drove the Australian dollar to a 15-year high versus the yen this week.
"There was some yen short-covering yesterday, but the basic picture has not changed as we expected, with the trend of yen carry trade continuing," said Tohru Sasaki, chief forex strategist at J.P Morgan Chase in Tokyo.
Tired of low interest rates at home, Japanese individual investors have been snapping up assets abroad for better returns. Even as two-year bond yields in Japan have jumped to decade highs this week, they remain well below those abroad.
The dollar was little changed against the euro after staging a broad-based rally the previous day as rising US government bond yields provided a big potential draw for investors outside the United States.
"A fall in US stocks was not a big deal, but rising US long-term interest rates and a firm outlook in the US economy make the dollar stronger against the yen as well as the euro," Sasaki said.
The dollar rose 0.2 percent against the yen to 121.18 yen on Friday from around 121.00 in late New York trade on Thursday. The euro was little changed at $1.3423 from $1.3428 in late US trade, off a three-week high of $1.3555 hit earlier in the week.
The euro climbed to 162.66 yen from 162.43 yen, off an all-time high of 164.62 hit earlier in the week. "The fall in the yen seems to be more to do with yen selling by Japanese individual investors," said Masafumi Yamamoto, a currency strategist at Nikko Citigroup.
The benchmark 10-year Treasury yields hit an 11-month high of 5.172 percent in Asian trade on Friday after breaking above the psychologically key 5 percent line the previous day.