The dollar hit a one-month high against the yen on Tuesday and tested a key resistance level after US retail sales data came in stronger than expected. That added to positive sentiment for the US currency which has been supported by the Softbank-Sprint deal and speculation of more easing from the Bank of Japan. "Dollar/yen is near sensitive levels. Speculative accounts are trying to test the upside now," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
The dollar rose 0.3 percent to 78.88 yen. Earlier, it rose to as high as 78.91 yen on trading platform EBS, the dollar's highest level since September 19. Although many traders expect the dollar's 77-79 yen trading range to persist, a substantial break above its Ichimoku cloud top, which now lies at 78.90, could be seen as one of the strongest bullish signs for the pair in many months.
The rise in US retail sales in September followed solid sales in August and pointed to resilient US domestic demand despite worries about a global economic slowdown. "There seems to be pressure piling on the Bank of Japan to take action later this month. People are expecting more stimulus from the BoJ," said Katsunori Kitakura, associate general manager of market making at Sumitomo Mitsui Trust Bank, referring to the bank's policy meeting on October 30.
Japanese mobile operator Softbank's $20 billion purchase of US third-largest wireless company Sprint Nextel, the largest foreign acquisition ever by a Japanese firm, has also encouraged dollar buying or at least discouraged yen buying. But the yen could be resilient due to worries over global growth as it tends to rise at times of economic stress due to Japan's net creditor status. Concern over the US fiscal cliff is increasingly in focus as the US Presidential election is just three weeks away. The euro rose 0.4 percent to 102.25 yen but was still in limbo against the dollar due to uncertainty over Spain.
The single currency traded at $1.2962, up 0.1 percent from late US levels. Traders say the euro, which has fluctuated around $1.28-1.30 in the past few weeks after hitting a four-month high of $1.31729 last month, may not trade out of this range until they get a clearer picture on Spain.
While expectations that Madrid will eventually seek a rescue package have discouraged speculators from betting against the euro aggressively, hopes that it will do so at a European Union summit later this week have dimmed. The Australian dollar rose 0.1 percent to $1.0266, but still remained below last week's high of $1.0294, showing muted response to the minutes from the Australian central bank's last policy meeting.