SYDNEY The yen stayed on the backfoot against the dollar on Wednesday as speculation grew the Bank of Japan might ease monetary policy later in the session, while the euro and high-beta currencies took another step down from multi-month highs.
The dollar bought 78.77 yen, not far from a one-week high of 78.93 scaled on Monday. A break there could see the greenback retest the September 7 high of 79.03, then 79.66, its August peak.
Analysts say the chances of action by the BOJ have risen since Thursday's announcement of new large-scale asset purchases by the U.S. Federal Reserve. That briefly drove the yen to a seven-month high on the dollar, an unwelcome move for an already struggling export-reliant economy.
If the BOJ obliges, traders expect further downside for the yen.
"The market wants to find another funding currency and the story in Japan is compelling," Societe Generale analysts wrote in a client note.
"The BoJ now has more doves and one could hope for the unexpected, namely that the BOJ surprises us positively both on what it delivers and the way it delivers this message and then executes its strategy."
The BOJ, which is due to announce its decision around 11.00 p.m. EDT, has a habit of disappointing markets.
Meanwhile, the euro slipped to $1.3044, retreating from a four-month high around $1.3173 set on Monday when markets were still punishing the dollar following the Fed's debt-buying announcement.
Given that the euro has rallied some 9 percent since late July, traders said the pullback reflected some mild profit-taking as markets waited for Spain to apply for aid and trigger the European Central Bank's own bond-buying program.
The Aussie fell prey to a bit of position adjustment as well, following its run-up to a six month high of $1.0625 on Friday. It last stood at $1.0449, the 38.2 percent retracement level of its September 6-14 rally.
On Tuesday, minutes of the Reserve Bank of Australia's September 4 meeting showed the bank was growing more worried about the global outlook. Markets have since moved to price in a better-than-evens chance of a rate cut next month.
(Editing by Wayne Cole)