The euro scaled a record peak against the yen on Monday on expectations for the Bank of Japan to raise interest rates only gradually, while the New Zealand dollar retreated on suspected fresh central bank intervention.
The euro extended its gains to hit a record high against the low-yielding yen for the second straight session, getting a boost from Friday's remarks by BoJ Governor Toshihiko Fukui that all but doused fears of a rate rise in July.
The yen was also on the back foot after US Treasuries and equities rallied on Friday as investors took comfort from data showing a tamer-than-expected gain in US core consumer prices.
"There has been a pause in sharp rises in global bond yields, falls in equities and moves toward risk reduction, which could cause the yen to rise," said Etsuko Yamashita, chief economist for Sumitomo Mitsui Banking Corp "Unless that changes, I think it's hard to put a stop to yen weakness," Yamashita added.
The euro rose 0.15 percent against the yen from late US trading on Friday to 165.45 yen staying near its record high of 165.56 yen on electronic trading platform EBS.
The euro was steady at $1.3395 holding on to its gains from Friday when it rose 0.5 percent, helped by US data showing slower-than-expected rises in core consumer prices, a decline in consumer confidence and surprisingly flat industrial production.
The dollar ticked higher to 123.55 yen clawing back towards a 4-1/2-year high of 123.66 yen hit on EBS on Friday, and an eventual rise toward 125 yen seemed likely, traders said.
US Treasuries have been hit hard in the past two weeks on concerns about inflation and fears of rising interest rates globally, pushing 10-year yields to five-year highs last week and denting US equities. The moves had sparked worries that market volatility might head higher and cause investors to shy away from risky positions such as yen carry trades, in which investors sell the low-yielding yen to buy higher-yielding assets and currencies.
With inflation data out of the way, market players will look to figures on US housing starts and building permits due on Tuesday to see if a downturn in the housing market, a soft spot of the economy, has yet to finally bottom out.
"Housing permits are expected to increase and may help dollar buying," said Masafumi Yamamoto, currency strategist at Nikko Citigroup in notes to clients.
"But if recovery in sales is weak, that may suggest inventories of unsold new homes remaining high and a downturn in the sector continuing, which makes traders hesitant about dollar buying."
Analysts foresee an annualised decline in housing starts for May down to 1.480 million, but expect building permits to pick up. At a news conference on Friday after the BoJ's policy board decided unanimously to keep rates unchanged at 0.5 percent, Fukui said he had no preconceived ideas on whether the BoJ should raise rates in July or at any particular time in the future. The New Zealand dollar slipped to $0.7545 from around $0.7550 in late US trading on Friday, having retreated after traders said New Zealand's central bank intervened on Monday for the second time in a week.
A spokeswoman at the Reserve Bank of New Zealand declined to comment on whether it had intervened on Monday, but market participants said the central bank had sold New Zealand dollars. The kiwi dollar initially fell half a cent to a low of around $0.75, but later trimmed some of its losses.
While the RBNZ intervention may prompt some profit-taking in the kiwi versus the yen, it seemed unlikely to spur any rush among investors to sell the New Zealand dollar or to unwind yen-short positions, traders said.
"The kiwi only fell about 50 pips, and the size of intervention doesn't seem that big. It's not as if this will force people to sell their New Zealand dollar holdings," the Japanese bank trader said.