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[TOKYO] The yen stood tall on Tuesday as tensions on the Korean peninsula flared-up anew amid an escalating war of words between North Korea and the United States, while the euro struggled near a four-week low versus the US dollar.
The US dollar was steady at 111.760 yen after coming off a high of 112.530 the previous day.
The euro was also little changed, at 132.460 yen after dropping more than one per cent overnight.
The Japanese currency made sharp gains after North Korea's foreign minister Ri Yong Ho said on Monday that President Donald Trump had declared war on the country and that Pyongyang reserved the right to take countermeasures, including shooting down US bombers even if they are not in its air space.
Japan is the world's largest creditor nation and traders tend to assume Japanese investors would repatriate funds at times of crisis, thus pushing up the yen. Many wonder, however, if Japanese assets would really remain in favour if an actual war broke out in Asia.
The Swiss franc, also sought in times of geopolitical tensions, stood at 0.9663 franc per US dollar after gaining about 0.3 per cent overnight.
"The dollar tends to fall on flare ups in North Korean-related matters, but whether the Federal Reserve can hike interest rates in December as they projected still remains the ultimate decider," said Shin Kadota, senior strategist at Barclays in Tokyo.
Immediate focus was on what views could be expressed by Fed Chair Janet Yellen, who is due to speak in Cleveland at 1645 GMT on "inflation, uncertainty, and monetary policy".
The euro was 0.1 per cent higher at US$1.1856 but in close reach of US$1.1832, its lowest level since Aug 31 plumbed the previous day when it sank nearly one per cent.
The common currency took a knock after German Chancellor Angela Merkel won her country's elections over the weekend but saw a chunk of support shift to the far right.
The euro faced additional pressure after European Central Bank President Mario Draghi singled out currency volatility as a source of uncertainty that required monitoring and argued that "ample" ECB accommodation was still needed, because a premature and hasty move could unravel its work.
"The euro had risen at a fast pace and the ECB is now sending cautious signals, weighing on the euro," Mr Kadota at Barclays said.
The euro had risen to a 2-1/2-year high of US$1.2092 on Sept 8 on hopes that the ECB would begin dismantling its large monetary easing scheme sooner rather than later.
The New Zealand dollar extended the previous day's slide and was last down 0.15 per cent at US$0.7256.
The kiwi sank one per cent overnight after New Zealand Prime Minister Bill English's National Party won the largest number of votes in Saturday's election but not enough seats to rule outright, leaving investors likely facing weeks of political horse-trading before a government is formed.
The US dollar index against a basket of six major currencies was a shade lower at 92.610 after rising 0.5 per cent the previous day to a three-week high of 92.724.