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 With minds turning to a Federal Reserve meeting next week seen as
the first clear chance of U.S. policymakers raising interest rates,
most of the major currency pairs were steady.
The yen, whose weakening has been a central plank of Prime Minister
Shinzo Abe's plan to dig Japan out of a long-term cycle of stagnant
growth and investment, has gained 3.5 percent in a month of
China-driven market turmoil.
That reflects its status as investors' safe haven of choice, but it
remains 20 percent weaker against the dollar than it was a year ago
and has fallen more than 1 percent this week.
"The prospect of another round of BoJ easing is rising and risk
aversion continues to slowly fade," said RBC Capital Markets
strategist Adam Cole.
"Prospective capital flows still argue for trend weakness in the yen
and, in the absence of another shock to general risk appetite, we
expect the grind higher in USD/JPY to resume. We retain our forecast
for the peak in the dollar at 132 yen."
After scaling a 10-day high of 121.38 overnight, the dollar was down
less than 0.1 percent at 120.50 yen in early European deals, a 1.2
percent gain on the week.
A media report on Thursday quoted Japanese ruling party lawmaker
Kozo Yamamoto as saying that the Bank of Japan's Oct. 30 policy
meeting would be a "good opportunity" for further monetary easing.
This was not the first time the outspoken Yamamoto, an adviser to
Japanese premier Shinzo Abe, has openly expressed his views on
monetary policy. But the timing appears to have struck a cord in the
markets which have recently seen soft Japanese data and equities
engulfed in volatility.
A government survey on Friday showed Japanese business sentiment
turned positive in July-September and companies stuck to upbeat
spending plans, offering the yen some support.
The Australian dollar was one of the few substantial movers, down
0.4 percent at $0.7044 in early European deals after surging 0.8
percent overnight on the back of a strong employment reading
overnight.
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A 1.2 percent overnight jump in offshore yuan against the dollar,
after suspected rare intervention by Chinese state-owned banks, also
provided a lift to the Aussie, but dealers in London said many
investors were happy to take profit on a solid performance for the
Australian currency this week.
"All of the factors that have driven Aussie weakness in the last
year are still there, so any gains, its about 2 percent this week,
are likely to be sold into," said a trader with one international
bank in London.
Traders said there would be some attention to the impact on sterling
and other UK market pricing of the election, due on Saturday, of a
new leader of Britain's main opposition Labour Party, likely to be
from its left wing.
Sterling had enjoyed a positive session after Bank of England
policymakers on Thursday played down the impact of China's
stock-market slump on Britain's prospects.
The pound, which scurried to a two-week high of $1.5476 on the
bank's optimistic outlook, last stood at $1.5443.
(Additional reporting by Shinichi Saoshiro and Ian Chua; Editing by
Robin Pomeroy)
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