The yen jumped on Monday as comments from Bank of Japan (BOJ) Governor Kazuo Ueda stoked hopes that Japan could soon herald a new era away from negative rates, while the dollar slid ahead of this week's key U.S. inflation reading.
The Japanese currency strengthened nearly 1% to touch a session high of 146.37 per dollar in Asia trade, boosted by weekend comments from Ueda that the central bank could end its negative interest rate policy when achievement of its 2% inflation target is in sight.
Ueda told the Yomiuri newspaper in an interview that the BOJ could have enough data by year-end to determine whether it can end negative rates.
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.
"It seems that Ueda's comments were intended to stop the yen's slide against the dollar," said Takehiko Masuzawa, trading head at Phillip Securities Japan. "His comments are working almost the same as government intervention."
Since the yen weakened past the key 145 per dollar threshold last month, traders have been on alert for any signs of intervention from Japan to shore up the currency. That level had, a year ago, prompted the first yen-buying intervention by the authorities since 1998.
Elsewhere, the greenback fell broadly, distancing itself from its three-month highs struck against the euro and the British pound last week.
The euro was last 0.21% higher at $1.0722, after having ended Friday with an eight-week losing streak. Sterling gained 0.3% to $1.2503.
The dollar index , which capped last week with eight straight weeks of gain, its longest run since 2014, slipped 0.12% to 104.72.
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.
Christopher Wong, a currency strategist at OCBC, attributed the dollar's slide to traders "lightening up" on their long dollar positions ahead of the data.
The greenback, along with U.S. Treasury yields, had surged last week after a run of resilient economic data added to bets that further rate hikes from the Fed may be on the horizon.
"The overall global economy is not booming, but neither is it on the verge of recession, and the U.S. appears to be doing the best among the major economies," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
TURN OF TIDE?
In Asia, the onshore yuan edged away from its 16-year low of 7.3510 per dollar hit on Friday to stand at 7.3188 per dollar, while the offshore yuan similarly strengthened more than 0.4% and last bought 7.3313 per dollar.
The consumer price index (CPI) rose 0.1% in August from a year earlier, slower than the median estimate for a 0.2% increase in a Reuters poll, while the producer price index (PPI) fell 3.0% from a year earlier, in line with expectations.
"Historically, we do not see China's inflation print negative numbers for very long, although I thought we might at least get a few more deflationary figures than the single one served," said Matt Simpson, senior market analyst at City Index.
Against the weaker U.S. dollar, the Aussie and the New Zealand dollar were among the biggest beneficiaries, each rising more than 0.5%.
The Australian dollar was last 0.6% higher at $0.64165, while the kiwi gained 0.52% to $0.5914.
