The dollar fell sharply against the yen on Tuesday after the Bank of Japan left interest rates unchanged and weak U.S. retail sales data compounded investors' search for safety as oil tumbled and equity markets globally turned lower.
Six weeks after shocking markets by cutting rates into negative territory, Bank of Japan Governor Haruhiko Kuroda said the central bank would take time to look at the impact, but could move again before the cut had worked its way fully into the economy.
Despite the below-zero interest rate and the possibility of further easing, investors piled into the yen, continuing the Japanese currency's more than 6.5 percent increase since the day after the rates were announced following its January meeting.
"We are obviously in the midst of monetary policy exhaustion," said Tina Byles Williams, Chief Executive Officer and Chief Investment Officer at FIS Group in Philadelphia. "There's anticipation of a risk-off moment and the yen is the protection against that."
The dollar fell by more than 1 percent against the yen following data that showed U.S. retail sales had fallen less than expected in February, but were reversed sharply downward for January.
It was last down 0.6 percent to 113.12 yen JPY=.
Stocks had been on a rally since taking a beating to start the year. A gauge of global equity markets .MIWD00000PUS rose nearly 5 percent the last two weeks and was up almost 10 percent for the past four. That gain also benefited the dollar, which has moved in concert with risk assets for much of this year.
"We had a nice rally in risk, but now it's starting to push interest rate expectations higher," Vassili Serebriakov currency strategist at BNP Paribas in New York. "Fed tightening expectations get repriced and then risk sentiment turns a bit more cautious."
The Federal Reserve has said it expects to continue raising rates this year, after hiking in December for the first time in nearly a decade. Such a rise in interest rates makes the dollar more attractive to investors, but can also weigh on company balance sheets by hurting U.S. exports and profits for U.S. companies that do business overseas.
Sterling was the day's other big mover, down 1 percent against the euro and dollar after a Daily Telegraph poll showed the campaign in support of Britain leaving the European Union nosing in front in the run-up to a June referendum.
The euro was flat at $1.1105 EUR=.
(Reporting by Dion Rabouin; Additional reporting by Patrick Graham in London; Editing by Andrea Ricci, Diane Craft)