The yen fell on Friday after Japan said the Group of 20 has accepted Tokyo's stance that the Bank of Japan's sweeping monetary expansion is aimed at beating deflation and not at competitively weakening the yen. The comments by Japanese Finance Minister Taro Aso eased concerns that the bold monetary stimulus, which had triggered a drop in the yen to a four-year low versus the dollar last week, could come under criticism at the G20 meeting.
The dollar rose 0.5 percent from late US trade on Thursday to 98.59 yen, while the euro gained 0.5 percent to about 128.78 yen. "The market had been rather nervous about the G20," said a trader for a European bank in Tokyo, adding that such jitters had increased after the United States issued its semi-annual report on the currency practices of major trade partners last week.
In the report, the United States had put Japan on notice that it was watching its economic policies to ensure they were not aimed at devaluing the yen to gain a competitive advantage. Global policymakers are gathered in Washington for a Group of 20 nations meeting on Thursday and Friday. They are expected to confirm a February pledge to avoid competitive currency devaluations, officials have said.
Although Japan seems unlikely to face any official criticism from the G20 as a whole, comments from individual members still bear watching, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore. "It's hard to tell what kind of comments might emerge, how strong their tone might be, and what kind of impact they may have on the market," Okagawa said. The BoJ's sweeping monetary stimulus unveiled earlier in April had triggered a tide of yen-selling that lifted the dollar to a four-year high of 99.95 yen last week.
The yen, however, has regained a bit of ground this week as renewed concerns about global growth prompted investors to trim bearish positions in the Japanese currency. Among the biggest losers this week are commodity currencies such as the Australian dollar, which had been stung by worries about growth in China, Australia's single biggest export market.
The Aussie edged up 0.3 percent to $1.0330. The Australian dollar, however, is down 1.7 percent so far this week, on track for its biggest weekly fall since October. The outcome of the G20 is likely to be "relatively benign" and the yen seems set to weaken further in the next few months, said Callum Henderson, Singapore-based global head of FX research for Standard Chartered Bank. "Our view remains that the yen will continue to fall. Our (dollar/yen) forecast for end-Q2 is 105," Henderson said.
Japanese capital flows data shows that Japanese investors, rather than make a dash toward overseas assets this month, have instead been repatriating funds from abroad. Still, analysts expect Japanese investors' appetite for overseas assets to pick up eventually.