The US dollar fell below 108 yen for the first time in 17 months on Thursday on bets the Bank of Japan will refrain from intervention, while the euro slipped against the dollar on the potential for a more dovish European Central Bank. The dollar fell as much as 1.6 percent against the yen to 107.71 yen, its lowest since late October 2014, before paring some losses in late trading. The BOJ has not signaled it would step in to halt the yen's rally, and investors have been forced to exit long-held short bets against the yen, analysts said.
"What (investors) are seeing now is that (Japanese) policymakers aren't providing the support for dollar/yen that they would have expected," said Shahab Jalinoos, global head of FX strategy at Credit Suisse in New York. "That's creating some degree of confusion, and of course, prudent risk management suggests one scales back on short positions." The dollar has fallen nearly 10 percent against the yen for the year, with the past week accounting for roughly 3 percent of the move.
BOJ Governor Haruhiko Kuroda said in a quarterly meeting of BOJ branch managers the central bank was ready to take additional monetary easing steps if needed to hit the bank's 2 percent inflation target. But he also said Japan's economy continues to recover moderately as a trend, and the head of the BOJ's Nagoya branch said Japanese automobile exports remain strong with no big damage seen from the yen's recent rises.
The euro weakened against the dollar from $1.1453, its highest level in nearly six months, to a session low of $1.1338. It was last down 0.2 percent at $1.1375. Investors may be preparing for the possibility of more stimulus from the ECB to counter the euro's recent strength, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange Inc in Washington.
"(The ECB) can't be happy with the euro's performance now close to $1.15," Esiner said. "That may suggest that the ECB may want to kind of step up its dovishness." The ECB targets inflation just below 2 percent, but flash data recently showed it was -0.1 percent in March. In addition, there are few signs the ECB's latest round of stimulus has had much impact on growth.
The US dollar index, which measures the greenback against a basket of six major currencies, was last up 0.08 percent at 94.501, from an earlier nearly six-month low of 94.015. However, the greenback is expected to stage modest gains against the euro and yen by the end of the year, according to a Reuters poll released on Thursday.