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[TOKYO] A broadly positive mood across Asian markets helped boost higher-risk currencies Friday, although analysts said traders were on edge ahead of a possible US interest rate hike next week.
The upbeat mood comes at the end of a week of high global volatility caused by the Chinese economic crisis and uncertainty about the Federal Reserve's rate plans.
The yen, considered a safe bet in times of turmoil, retreated before depreciating after Japanese equity markets closed for the weekend.
The dollar bought 120.45 yen compared with 120.63 yen Thursday in New York, while the euro was at 136.18 yen compared with 136.01 yen. The single currency also rose against the dollar, sitting at $1.1300 from $1.1275 in US business.
The Malaysian ringgit gained 0.28 per cent and the South Korean won rose 0.83 per cent while the Australian dollar edged higher after sitting at six-year lows earlier in the week. There were also gains for the Indian rupee and Thai baht.
The gains were in line with a broad advance in regional equity markets Friday, which followed an uptick on Wall Street.
"If sentiment will deteriorate and the yen will appreciate (after a US rate hike), the BoJ has incentive to support the market," said Tomohiro Okawa, an equity strategist at UBS Group in Tokyo.
"In the mid-term, the yen will be weak," Mr Okawa told AFP, adding that he expects short-term deprecation of the Japanese unit to a level of 117 yen per dollar if the Fed hikes US interest rates, which he sees as the biggest event for global equity markets this year.
Focus is now on the Fed policy meeting that ends Thursday, with market opinion split on whether it will lift rates for the first time in nine years.
While an increase is expected by the end of the year, the bank's decision has been muddied by the recent turmoil in global markets caused by fears over the slowdown in China's economy.
A hike in borrowing costs would likely hinder investment possibilities and also fan a flight of capital back to the United States in search of better returns, to the detriment of emerging markets.
Talk of a widening of Japan's already huge bond-buying programme gathered pace Thursday after an influential Japanese lawmaker called for extra stimulus in a Bloomberg News interview.
In other Asia-Pacific currency trading, the dollar retreated to S$1.4133 from S$1.4196 on Thursday, to 46.81 Philippine Pesos from 46.87 pesos and to NT$32.52 from NT$32.55. But it rose to 14,324 Indonesian rupiah from 14,323 rupiah.
The Chinese yuan fetched 18.90 yen against 18.95 yen.