On Friday, China said it would increase tariffs on $75 billion worth of American goods. The United States retaliated by saying it would raise existing tariffs on $250 billion worth of Chinese goods to 30% from 25% on Oct. 1.
U.S. President Donald Trump also said he would tax another $300 billion worth of Chinese imports 15%, rather than the 10% he had planned. Those levies go into effect on Sept. 1.
On Monday, speaking on the sidelines of the G7 summit of world leaders in France, Trump said Chinese officials had contacted U.S. trade counterparts overnight and offered to return to the negotiating table.
Trump's comments sparked a wave of so-called risk-on trades, which initially boosted the dollar, weakened safe-haven currencies, and lifted stock markets.
However, doubts crept in after a Chinese Foreign Ministry spokesman said he was unaware that a phone call had taken place. The Commerce Ministry, which typically releases statements on trade calls, did not respond to a request for comment.
"The yen has been one of the best-performing global currencies this year and continues to benefit from building downside risks to global growth from escalating trade tensions," said Lee Hardman, currency analyst at MUFG.
The Japanese currency was last up by 0.5% at 105.63 against the dollar. That wasn't as strong as Monday's gain, when it reached a three-year high, excluding the January flash crash. The yen has gained 3.6% against the dollars as the trade war drove traders to safe-haven assets.
The yen is "likely to strengthen further if tensions continue to build," Hardman said.
Ten-year U.S. Treasury yields fell to 1.5097%, keeping the yield curve inverted as two-year yields traded at 1.5264%, a sign of an impending recession.
The offshore Chinese yuan, sensitive to U.S.-China trade disputes, was lower Tuesday after plunging to a record low of 7.1870 against the dollar the day before. It last traded down 0.1% at 7.1770.
China's central bank lowered its official yuan midpoint to an 11-1/2-year low on Tuesday, but stronger than traders had expected.
The Turkish lira was down by 0.4% at 5.8452 against the dollar, having plunged Monday by more than 10% in a second flash crash this year.
Elsewhere, major currencies were relatively stable.
The euro was up by 0.1% at $1.1113 and the index that tracks the dollar against six other currencies was l down 0.2% at 97.898.
The pound was up 0.2% at $1.2242 and 0.1% against the euro at 90.765 pence.