The dollar held near a 4-1/2-year high on Friday, boosted by a climb in US Treasury yields to a five-year high this week, while investors renewed their appetite for risk and sold the low-yielding yen in carry trades.
Traders awaited US consumer price data later in the day to see if Treasury yields rise further, as well as comments by Bank of Japan Governor Toshihiko Fukui after a policy meeting at which the central bank held rates at 0.5 percent as widely expected.
The dollar jumped above the psychologically important 122.20 yen level this week as investors abandoned the possibility of a Federal Reserve rate cut this year, prompting a Treasury sell-off that drove the benchmark 10-year yield to its highest since 2002. "The dollar has cleared a key hurdle against the yen, which is attracting more buying," said Nobuo Ibaraki, a forex manager at Nomura Trust and Banking.
The dollar hovered around 123.00 yen little changed from levels in late New York trade, after climbing to 123.13 yen on electronic trading platform EBS on Thursday. The euro inched up to $1.3322 but stayed near $1.3264 hit this week for the first time since late March.
The yen stayed under downward pressure as investors warmed to riskier trades that use low-yielding currencies such as the yen to fund investments in higher-yielding assets overseas, as many stock and bond markets stabilised after tumbling this week.
Traders noted that Japanese investment trusts were selling the yen against other currencies as they hunt for higher yields on behalf of individual investors putting their summer bonuses to work.
This helped prod the euro 0.2 percent higher to 163.83 yen pulling away from a one-month low hit earlier this week. High-yielding currencies such as the Australian and New Zealand dollars climbed about 0.3 percent respectively against the yen. Traders see the dollar extending its gains and say it could climb towards 125 yen in the near term, particularly if figures on US core consumer prices due later in the day show inflation risks rising as economic growth remains solid.
The core consumer price index is expected to have risen by a moderate 0.2 percent in May from April. Also due are US industrial production figures and a consumer sentiment survey. Strong readings could signal ongoing strength in the US economy, which would support the dollar.
Before the US data rush, traders awaited comments by the BoJ governor. Market participants expect the central bank to raise rates to 0.75 percent as early as August, and they want to see if Fukui says anything to bolster that view.
Even if he does, some traders say any resulting yen gains will likely be short-lived as the BoJ is expected to take its time in the Swiss franc up from a four-month low against the dollar slightly higher BoJ rates would hardly provide a reason to buy the yen. "Switzerland raised rates and look what dollar/Swiss did - it went up. Swiss rates are not high enough to get people to buy Swiss and Japanese rates are even lower," so yen selling is likely to continue, he said.