The yen rose across the board on Thursday as investors reduced demand for riskier assets such as stocks after a series of weak U.S. economic data added to anxiety over the country's growth picture.
Analysts said that while market indicators pointed to the Federal Reserve being close to the end of its interest rate cutting cycle, there were nagging doubts on whether the economy would be able to cope without further policy easing.
"It's a yen story. Industrial production was weak and capacity was down. Although the Philly Fed improved, it's still negative and jobless claims were not good," said Ashraf Laidi, chief forex strategist at CMC Markets in New York.
"We cannot just dismiss these numbers by saying manufacturing is a small component of the economy. It is irresponsible for the market to reduce or eliminate the possibility of a rate cut by the Fed."
The dollar slumped to a session low of 104.44 yen and was last trading at 104.64 yen, down 0.4 percent on the day. The euro fell 0.5 percent to 161.72 yen , while sterling dropped 0.4 percent to 203.68 yen .
The low-yielding yen tends to attract flows during periods of uncertainty as the low interest rates reflect Japan's capital surplus.
Factory activity in the U.S. mid-Atlantic region shrank for a sixth straight month in May, while manufacturing in New York State also declined, according to reports by regional Federal Reserve banks.
U.S. interest rate futures continued to signal the expectation the Fed would raise the benchmark federal funds rate by a quarter percentage point by the end of the year to 2.25 percent. They were pricing in a 92 percent perceived chance that the central bank would leave rates steady in June.
Analysts also attributed the yen's advance to a reversal of the previous session's decline and the dollar's failure to break through the 105.20 mark against the Japanese currency.
"There still seems to be pretty good interest to sell U.S. dollars and buy yen at the 105 area," said Shaun Osborne, chief currency strategist at TD Securities in Toronto.
"People continue to view the market as being prone to financial risk and volatility. I still think they are trying to pick up the yen on the dips."
In afternoon trading, the dollar rebounded versus the euro as U.S. stocks .DJI extended gains. A further drop in oil prices CLc1 boosted equities and eased some pressure on the dollar. Crude oil for June delivery fell more than 2 percent.
The euro was last down 0.1 percent at $1.5462 after hitting a session high earlier of $1.5547.
Earlier in the session, the euro zone currency rose as data showed strong first-quarter growth in France and Germany. But the market's enthusiasm was dampened by European Central Bank chief Jean-Claude Trichet's warning that the pace might not be as flattering in the months ahead.
The ECB's refinancing rate is at 4 percent and the interest rate differential between the euro zone and the United States has been the main driver behind the dollar's decline.
The market largely shrugged off data showing that the United States suffered net capital outflows of $48.2 billion in March after attracting inflows of $48.9 billion in February.
"There is a predisposition right now in the market to buy dollars. We need a proper catalyst to do that," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon in New York.
Analysts said that while market indicators pointed to the Federal Reserve being close to the end of its interest rate cutting cycle, there were nagging doubts on whether the economy would be able to cope without further policy easing.
"It's a yen story. Industrial production was weak and capacity was down. Although the Philly Fed improved, it's still negative and jobless claims were not good," said Ashraf Laidi, chief forex strategist at CMC Markets in New York.
"We cannot just dismiss these numbers by saying manufacturing is a small component of the economy. It is irresponsible for the market to reduce or eliminate the possibility of a rate cut by the Fed."
The dollar slumped to a session low of 104.44 yen and was last trading at 104.64 yen, down 0.4 percent on the day. The euro fell 0.5 percent to 161.72 yen , while sterling dropped 0.4 percent to 203.68 yen .
The low-yielding yen tends to attract flows during periods of uncertainty as the low interest rates reflect Japan's capital surplus.
Factory activity in the U.S. mid-Atlantic region shrank for a sixth straight month in May, while manufacturing in New York State also declined, according to reports by regional Federal Reserve banks.
U.S. interest rate futures continued to signal the expectation the Fed would raise the benchmark federal funds rate by a quarter percentage point by the end of the year to 2.25 percent. They were pricing in a 92 percent perceived chance that the central bank would leave rates steady in June.
Analysts also attributed the yen's advance to a reversal of the previous session's decline and the dollar's failure to break through the 105.20 mark against the Japanese currency.
"There still seems to be pretty good interest to sell U.S. dollars and buy yen at the 105 area," said Shaun Osborne, chief currency strategist at TD Securities in Toronto.
"People continue to view the market as being prone to financial risk and volatility. I still think they are trying to pick up the yen on the dips."
In afternoon trading, the dollar rebounded versus the euro as U.S. stocks .DJI extended gains. A further drop in oil prices CLc1 boosted equities and eased some pressure on the dollar. Crude oil for June delivery fell more than 2 percent.
The euro was last down 0.1 percent at $1.5462 after hitting a session high earlier of $1.5547.
Earlier in the session, the euro zone currency rose as data showed strong first-quarter growth in France and Germany. But the market's enthusiasm was dampened by European Central Bank chief Jean-Claude Trichet's warning that the pace might not be as flattering in the months ahead.
The ECB's refinancing rate is at 4 percent and the interest rate differential between the euro zone and the United States has been the main driver behind the dollar's decline.
The market largely shrugged off data showing that the United States suffered net capital outflows of $48.2 billion in March after attracting inflows of $48.9 billion in February.
"There is a predisposition right now in the market to buy dollars. We need a proper catalyst to do that," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon in New York.
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