LONDON The yen hit a one-month high against the dollar on Tuesday after the Bank of Japan refrained from loosening monetary policy further, and it looked likely to hold gains in the near-term as concerns about U.S. growth weighed on Treasury yields.
The yen also rose to a one-month peak versus the euro, with the shared currency seen as vulnerable due to a return of concerns over sovereign debt. Analysts said any rise in Spanish and Italian bond yields would prompt fresh sales of the euro.
The dollar slipped 0.5 percent against the yen to 81.05 yen, its lowest since early March.
"Even looking beyond the BoJ and Japanese policy the global environment suggests dollar/yen will stay under pressure," said Ian Stannard, head of European FX strategy at Morgan Stanley.
"The overall trend is going to be dominated by the global bond market and we will be looking for a move back into the 80 yen area."
The dollar has been under pressure against the safe haven yen since Friday when weaker-than-expected U.S. payrolls fuelled speculation the Federal Reserve may consider another round of quantitative easing to boost growth.
Such speculation weighs on Treasury yields, which surged last month on tentative hopes of improving U.S. growth and after a surprise easing of monetary policy by the BoJ in February.
The Bank of Japan held off any new steps at Tuesday's meeting to help meet its new inflation target and boost activity ahead of a more thorough assessment of the economy later this month.
Despite that, some analysts said the yen's gains this week could be capped by speculation of further stimulus from the BoJ when it issues new forecasts on the economy on April 27. Japanese growth is still fragile and consumer inflation around zero.
"The market is expecting further easing from the BOJ at some point in April," said Koji Fukaya, chief currency strategist in Credit Suisse in Tokyo.
As the yen rose across the board after the BOJ's decision, the euro retreated from session highs at 107.48 yen to hit a trough of 105.97 yen. Some traders earlier cited stop-loss buying in the pair triggered by U.S. banks.
Morgan Stanley's Stannard said the euro could move significantly lower against the yen given rising euro zone debt concerns and would look for a move in to the 102 yen area.
FED IN FOCUS
The euro fell 0.2 percent versus the dollar to $1.3077, within sight of a one-month low of $1.3033 hit on Monday. Stop loss selling was reported around $1.3090 and market players cited more stops below $1.3064.
Both Spanish and Italian yields spreads over Bunds widened in early European trade, extending moves from last week when the U.S. jobs numbers added to concerns about the global economic outlook.
Spanish bonds have also come under pressure recently as investors fretted Spain could be the next source of contagion in the euro zone due to its weak fiscal position.
Better than expected German trade data failed to provide the euro with much support as investors remained focused on underperformance in the periphery.
"It (German data) is highlighting the diverging economic performance within the euro zone....and is not going to help the euro's cause too much. Any rebounds will provide good selling opportunities for the euro," Stannard said.
The growth-correlated Australian dollar dipped slightly to US$1.0293. It struggled to pull away from a three-month low of US$1.0243 hit last week, weighed down by soft local data, lingering concerns about a hard landing for the Chinese economy and expectations for a cut in domestic rates next month.
Data showing China recorded a $5.35 billion trade surplus in March as exports grew faster than expected provided some support. Monday's high inflation reading of 3.6 percent also dealt a blow to hopes for more domestic stimulus for the Chinese economy.
The Australian dollar tends to be very sensitive to news out of China, its key export market.
(Additional reporting by Antoni Slodkowski; editing by Patrick Graham)