The yen fell on Friday after Japan said the Group of 20 accepted its stance that its aggressive monetary expansion was aimed at beating deflation and not at competitive devaluation. Traders said the lack of objection from the G20 to Japan's policy encouraged hedge funds to resume buying the dollar against the yen, leaving it poised to test the 100 yen mark in the coming days.
The dollar rose more than 1 percent to hit 99.345 yen, leaving it within sight of the four-year peak of 99.95 yen reached last week. Offers were reported around 99.50 yen, however, which may stem its rise in the very short term. The euro rose more than 1 percent to hit 130.05 yen and looked on course to test last week's three-year high of 131.10 yen.
The yen fell as Japan's Finance Minister Taro Aso eased concerns a G20 meeting in Washington could opt to criticise Japan for the unprecedented monetary stimulus announced earlier this month, which prompted a tide of yen selling. "Worries that the G20 could criticise Japan were a reason not to push dollar/yen up before ... Now it will probably take out 100 yen next week," said Geoff Kendrick, currency strategist at Nomura.
Renewed yen weakness also boosted higher-yielding currencies like the Australian dollar, as well as the likes of the euro and sterling on speculation that Japanese domestic investors would increasingly seek higher yields overseas. This helped the euro rise 0.3 percent against the dollar to $1.3085, staying comfortably above chart support at $1.30 and a low of $1.3001 hit earlier this week.
The euro shrugged off political uncertainty in Italy and the prospect that the European Central Bank could lower interest rates to support flagging growth. "The yen story definitely impacts high-beta currencies like the Australian dollar, and the euro at the margins. Otherwise, euro/dollar is a side-show at the moment," Nomura's Kendrick said. Splits within Italy's centre-left led to two unsuccessful votes for presidential candidate Franco Marini on Thursday, prolonging the stalemate produced by an inconclusive result in general elections in February.
In the absence of G20 criticism, traders and analysts say the yen is likely to come under pressure in coming months. "Now the big thing that everyone is waiting for is outflows from Japan to take place. When it takes place, that will give another leg up for dollar/yen," said Beat Siegenthaler, currency strategist at UBS. Worries Japan could be criticised increased after the United States issued its semi-annual report on major trade partners' the currency practices last week. It said it was watching Japan's policies to ensure they were not aimed at devaluing the yen for competitive advantage. The higher-yielding Aussie gained 0.4 percent to $1.0339 and jumped 1.5 percent to 102.66 yen. It was, however, weaker against the dollar and yen on the week.