The yen hovered near an all-time low against the euro and a 4-1/2-year low versus the dollar on Wednesday as investors felt confident in placing carry trades to take advantage of the low-yielding Japanese currency.
Robust global growth, buoyant stocks and renewed calm after a sell-off in major bond markets have prompted investors to borrow funds in currencies like the yen to purchase higher-yielding currencies such as the Australian and New Zealand dollars.
"Carry trades are the underlying driver of the whole move," said Luke Waddington, head of FX trading at Royal Bank of Scotland in Tokyo. The Australian dollar struck a 16-year peak against the yen, while the New Zealand dollar has shaken off attempts by the country's central bank to weaken it and pushed to a 20-year peak versus the yen.
Currency strategists at RBC Capital Markets said the New Zealand dollar has moved back into "intervention range" and the Reserve Bank of New Zealand should be watched closely.
The dollar was near 123.40 yen, little changed from late Tuesday US trade and just off a peak of 123.76 yen struck earlier in the week on electronic trading platform EBS, the highest since December 2002. The euro drifted up to 165.70 yen from around 165.60 yen, near the all-time high of 166.12 yen hit on EBS in the previous session.
The single European currency was steady at $1.3430, having rebounded from an 11-week low of $1.3264 touched last week. The dollar has slipped versus the euro in the past three sessions as the rebound in Treasuries from their sharp sell-off has pulled benchmark US yields down from a five-year high, which had given the US currency a boost.
Data showing US core inflation cooling in May and sentiment at home builders falling to a 16-year low this month reinforced expectations the Federal Reserve would likely keep rates steady at 5.25 percent.
The New Zealand dollar changed hands at $0.7594, near a 22-year peak of $0.7640 hit earlier in the month and close to the levels when the RBNZ first confirmed it had intervened to sell the currency last week. The pound was steady at $1.9875 and 245.20 yen as market players awaited the minutes of the Bank of England's June meeting for clues on how much higher the central bank could raise rates this year.
The minutes of the Bank of Japan's mid-May meeting released on Wednesday showed board members felt there was considerable uncertainty about the outlook for consumer prices. Since that meeting, BOJ Governor Toshihiko Fukui has said the central bank could raise rates even if core consumer prices are still falling as long as the central bank expects inflation to pick up, stoking expectations for a credit tightening in August.
The yen has slid since Fukui said last Friday the BOJ wanted to confirm the sustainability of capital and consumer spending, erasing some speculation of a move as soon as July to 0.75 percent from the current 0.50 percent.