The yen edged higher against the dollar on Wednesday, supported by seasonal flows from Japanese exporters who bought the yen with the end of their financial year approaching.
The dollar fell 0.3% to 82.92 yen, while the euro eased 0.2% to 110.52 yen to inch away from a 4-1/2 month high of 111.43 yen hit last week on trading platform EBS.
Yen buying by Japanese exporters tends to pick up steam at the month-end, and there has been additional focus on their potential flows recently as the financial year for most Japanese companies closes at the end of March.
Such seasonal factors helped spur yen-buying by Japanese exporters on Wednesday, despite the fact that some had already hedged their foreign exchange exposure for the next few months.
"They may have hedged all the way down to June or even beyond that, but there are always some orders one has to execute at the end of the financial term," said a customer dealer for a major Japanese bank in Tokyo.
The dollar has taken a breather from its recent rally against the yen as profit-taking emerged after the greenback hit an 11-month high of 84.187 yen earlier this month on trading platform EBS.
The yen has come under pressure after the Bank of Japan's surprise monetary easing in February, when the central bank expanded its asset-buying scheme by 10 trillion yen and set an inflation goal of 1%.
LOOSE MONETARY POLICIES
Market players say the loose monetary policies of major central banks such as the BOJ and the Federal Reserve may help support risk-taking. That in turn could prompt investors to sell the low-yielding yen to fund investment in more rewarding assets.
The dovish-sounding comments by Fed Chairman Ben Bernanke this week may help support risky assets in general, and could weigh on the yen, at least on the crosses, the trader said.
Bernanke said on Tuesday it is too soon to declare victory in the U.S. economic recovery, warning against complacency in policy-making as the outlook brightens.
The BOJ's monetary policy stance in coming months will also be closely watched.
The dollar may see some pullbacks against the yen in the coming quarters if the market starts to doubt the feasibility of the BOJ's inflation goal, said Callum Henderson, global head of FX research with Standard Chartered Bank in Singapore.
"Our view in terms of direction is that most of this move higher in dollar/yen has already been seen, and that we'll get some degree of retracements in the second and third quarters," Henderson said.
"As the year goes on, I think the market is going to take an increasingly sceptical view of whether the BOJ can achieve 1% inflation," he added.
The euro rose 0.2% to $1.3334 but remained below a one-month high near $1.3386 hit on Tuesday.
One trader said euro buying by a macro fund at levels above $1.3320 helped nudge the single currency higher.
The euro had come under pressure on Tuesday after hitting its one-month peak, as the safe-haven dollar edged higher, supported by a slight retreat in U.S. equities, market players said.
