The yen regained its footing against higher-yielding currencies on Wednesday as worries about financial market turmoil lingered despite an emergency interest rate cut by the US Federal Reserve. Higher-yielding currencies rose initially after the Fed cut the federal funds rate by 75 basis points to 3.5 percent on Tuesday in the biggest cut in 23 years.
But later pared their gains as a rebound in regional shares lost some steam. Asian stocks rose a day after the Fed's move, reversing a recent plunge triggered by a wave of panic selling in global equities. But they trimmed some of their initial gains as concerns of US weakness trickling into other economies curbed a willingness to take risky positions.
Moves in equities markets are regarded as a barometer of investors' appetite for risky carry trades, which involve selling the low-yielding yen to buy higher-yielding currencies and assets.
The dollar initially rose nearly a full yen from levels in late US trading on Tuesday to around 107.40 yen, but later erased all of its gains and fell back to 106.30 yen, a loss of 0.1 percent on the day. The euro fell around 0.1 percent against the Japanese currency to 155.59 yen down sharply from the day's highs of around 157.15 yen.
The euro climbed as much as 0.4 percent to the day's high around $1.4685 in early Tokyo trade, extending its rally after surging 1.3 percent on Tuesday, its biggest one-day percentage gain since early 2006. But it later relinquished its gains to stand at $1.4637, little changed from late US trading on Tuesday.
The euro was supported as the European Central Bank's 4.0 percent interest rate now eclipses the federal funds rate, but some traders doubted the euro would rally aggressively as the Fed move could pressure the ECB to lower rates.
Financial markets see a good chance that the Fed will lower interest rates by another half point at its policy meeting on January 29-30. The Australian dollar fell 0.3 percent to 86.64 US cents Against the yen, it slid 0.6 percent to 92.07 yen.