Yen stands tall, dollar finds floor ahead of US inflation

The yen steadied near a one-week high on Tuesday as comments from Japan's top central banker on a possible end to its negative interest rate policy reverberated through markets, while the dollar regained some lost ground. Bank of Japan (BOJ) Governor Kazuo Ueda told a newspaper interview over the weekend the bank could get enough data by year-end to determine whether it can end negative rates, remarks that on Monday saw the yen clock its largest daily gain against the dollar in two months.

The Japanese currency was last marginally lower at 146.61 per dollar, after scaling a one-week top of 145.91 in the previous session. "Essentially, Governor Ueda laid out a conditional path and timeframe for the first-rate hike and a move away from its negative interest rate policy, should the data permit," said Chris Weston, head of research at Pepperstone.

"One can assume that the BOJ are also one step closer to moving away from yield curve control (YCC), and logically one could argue that the BOJ would like to be able to lift rates and remove YCC concurrently." The yen has come under immense pressure against the dollar as a result of growing interest rate differentials with the United States, since the Federal Reserve began its aggressive rate-hike cycle last year while the BOJ remains a dovish outlier.

Elsewhere, the U.S. dollar reversed some of its close to 0.5 per cent loss against a basket of currencies on Monday. The Aussie was last 0.12 per cent lower at $0.6423 while the New Zealand dollar fell 0.14 per cent to $0.5911, having been among the biggest beneficiaries against a weaker greenback on Monday and gaining 0.8 per cent and 0.6 per cent, respectively.

The euro , however, touched a one-week high of $1.0771. "Given the fact that we've also had pretty strong momentum behind long U.S. dollar positions broadly across G10 currency pairs, I think it's given the market reason to take profit ahead of the (inflation) numbers in the U.S.," said IG market analyst Tony Sycamore.

U.S. inflation data for the month of August is due on Wednesday, with traders on the lookout for whether the world's largest economy is indeed on track for a "soft landing" and whether the Fed has further to go in raising rates. The U.S. dollar index , which ended last week with an eight-week winning streak, rose 0.03 per cent to 104.60, after falling 0.46 per cent in the previous session. Sterling steadied at $1.2508.

The offshore yuan found some support near Monday's one-week high and last bought 7.3020 per dollar. It had jumped more than 0.8 per cent in the previous session, its largest daily gain in about six months, further boosted by data showing new bank lending in China beat expectations by nearly quadrupling in August from July's level.

In cryptocurrencies, bitcoin was last marginally higher at $25,179, after falling below $25,000 for the first time in three months on Monday. Ether similarly gained 0.29 per cent to $1,556.20, after sliding to a six-month low of $1,531.10 in the previous session.

"At the moment, what we're really seeing is the effects of tighter liquidity in the market starting to weigh on speculative assets like bitcoin once again," said Kyle Rodda, senior financial market analyst at Capital.com.