The Japanese yen weakened against the U.S. dollar on Tuesday after experiencing its biggest one-day percentage increase since mid-July in the previous session.
The dollar gained 0.39 percent against the yen, reaching 147.15. The increase partially reversed the loss from its 0.83 percent decline against the Japanese currency on Monday, following comments made by Bank of Japan (BoJ) Governor Kazuo Ueda.
In a weekend interview, Ueda said the central bank might gather sufficient data by the end of the year to assess the possibility of discontinuing negative interest rates.
"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 Pepperstone head of research Chris Weston.
"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 faced significant pressure from the dollar due to the widening interest rate gap with the U.S. It was primarily due to the Federal Reserve initiating an assertive series of interest rate hikes last year. The BoJ, on the other hand, maintained a more dovish stance.
Hiroshige Seko, a senior official in Japan's ruling party, said Tuesday that Ueda's remarks implied that the central bank would persist with monetary easing in the meantime.
Dollar rebounds ahead of inflation report
After concluding the previous week with an eight-week streak of gains, the greenback index saw a 0.14 percent increase to reach 104.72 on Tuesday. It followed a 0.46 percent decline in the prior forex trading session.
Investors are now waiting for the U.S. consumer price index (CPI) for August to be released on Wednesday. They are monitoring these data to determine whether the world's largest economy is progressing towards a "soft landing" and to gauge whether the Fed will need to continue raising interest rates.
"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.," Tony Sycamore, a market analyst at IG, told Reuters.
Elsewhere, the sterling depreciated by 0.2 percent to $1.2485. It followed the release of U.K. labor market data, which indicated that wage growth was likely to support the Bank of England's plan for another rate increase.
The euro was down by 0.19 percent to trade at $1.0728 ahead of the European Central Bank's policy announcement on Thursday.
The Australian dollar was slightly lower at $0.6430, while the New Zealand dollar declined by 0.16 percent to $0.5910. Both currencies gained over a weaker U.S. dollar on Monday, rising by 0.8 percent and 0.6 percent, respectively.
The onshore and offshore yuan received some backing. They were traded at 7.2907 and 7.3072 per dollar, respectively. On Monday, these two currencies recorded their most substantial daily gains against the dollar in approximately six months.
According to Reuters, China's central bank is intensifying its oversight of large-scale dollar acquisitions by domestic companies. This move coincides with increasing concerns surrounding the yuan depreciation in the market.
Tighter liquidity affects crypto
In other news, Bitcoin saw an over two percent increase, reaching $25,720. It came after the token dipped below $25,000 for the first time in three months on Monday.
Similarly, Ether recorded a 1.8 percent gain, reaching $1,579.20. It followed its decline to a six-month low of $1,531.10 in the previous session.
Capital.com senior financial market analyst Kyle Rodda said the tighter liquidity in the market had begun to weigh on risky assets like crypto.