SYDNEY Investors remained wary of the yen on Friday with the threat of easier monetary policy from the Bank of Japan still ringing loudly, while disappointing U.S. data and falls in global stocks kept the heat on commodity currencies.
The dollar stood at 81.69 yen, having hit a 1-1/2 week high at 81.74. That brought the April 10 peak of 81.87 in focus. The euro rose as high as 107.35, pulling well away from Monday's trough around 104.63.
Signaling the central bank's readiness to take further action to support the economy if needed, Bank of Japan Governor Masaaki Shirakawa reiterated the bank will continue to pursue powerful monetary easing until its 1 percent inflation target is in sight.
While the BOJ's stance supports the use of the yen as a funding currency for carry trades, traders said the market has already priced in some form of easing from the BOJ and more may be needed for the yen to decline further.
"A modest increase in the asset purchase target being announced next Friday, in the order of 5 trillion yen, looks to be discounted," BNP Paribas analysts wrote in a client note.
"As such, more than this may be required to see the USDJPY rally extend. That said, any decision to increase the maturity of JGBs purchases beyond the current 1-2 years could also help support USDJPY."
Against the dollar, the single currency emerged from a choppy overnight session none the worse for wear. It hit a high of $1.3166 following a successful Spanish bond sale but then dropped on rumors, later denied, of a possible French rating downgrade.
All that drama left the euro at $1.3143, still in a well-defined trading range between $1.3000/$1.3200.
Commodity currencies, though, nursed losses after disappointing U.S. data and poor earnings results sapped risk sentiment.
Data showing the number of Americans claiming unemployment benefits for the first time fell only slightly last week, suggesting that job growth in April will not improve much after a disappointing performance last month.
The Australian dollar retreated to $1.0334, falling for a second day. However, it too remained within this week's range of $1.0305/1.0420, with markets yet to find enough momentum to break out of its current range.
"Now, with the G20 convening in Washington, much attention will be drawn to how and where the International Monetary Fund draws up additional funding from in order to further beef up Europe's bailout funds," said Christopher Vecchio, analyst at DailyFX.
"Should the G20 decide that the IMF's funding capacity is adequate...I expect the European and commodity currencies to depreciate against the yen and U.S. dollar over the coming sessions."
The IMF's bid to win a big boost in funding to handle the euro-zone debt crisis hit a speed bump on Thursday when Brazil demanded more power at the IMF for emerging economies as a condition for lending it extra cash.
The discussion will continue on Friday.
(Editing by Wayne Cole)