[TOKYO] The yen hovered near 3-1/2-week lows on Tuesday on a combination of growing expectations of monetary easing by the Bank of Japan, a broad recovery in risk appetite and speculation about M&A-related yen-selling.
The New Zealand dollar was one of the big movers in early Asian trade, with the kiwi falling sharply after the Reserve Bank of New Zealand stepped up efforts to impose fresh curbs on a hot housing market - a move seen as raising the chance of a rate cut.
The yen traded at 106.20 yen to the US dollar, having fallen to as low as 106.33 in early trade, its lowest level since June 24.
It is currently supported at its 55-day moving average at 106.34 but a break of that level could prompt traders to test its June 24 low of 106.875.
Speculators have been betting that the Bank of Japan will further ease its policy at the rate review on July 29, as the government in Tokyo prepares new fiscal stimulus to boost the economy.
Traders are also unwinding their safe-haven bids in the yen as the initial shocks from last month's vote by Britain to leave the European Union ebb, with US shares hitting record highs partly because Brexit has helped to quash expectations of near-term rate increases by the US Federal Reserve.
Traders were also expecting yen selling from Softbank, which will buy Britain's most valuable technology company ARM for US$32 billion in cash.
The British pound rose to 140.77 yen, having recovered about nine per cent from the 3-1/2-year low of 129.05 yen hit in the wake of the EU referendum.
The pound is steady against most other currencies and traded at US$1.3266.
The British pound also garnered support after Bank of England policymaker Martin Weale said on Monday there was no urgent need to cut interest rates.
The euro stood little changed at US$1.1076 ahead the European Central Bank's policy meeting on Thursday.
While the ECB is widely expected to keep rates on hold, some bond traders speculate the central bank may need to address scarcity of bonds it can buy, with more than a half of German bonds now ineligible for its asset purchase.
The US dollar index was found reasonable support but lacked momentum to test its four-month high marked last week.
The index stood at 96.58, below its July 11 high of 96.793.
"Although US payrolls data published earlier this month was pretty strong, some US data released after the British referendum shows some weakness. The markets will be looking to upcoming data to see the strength of the payrolls data will be sustainable," said Shinichiro Kadota, chief FX strategist at Barclays Securities Japan.
Elsewhere, the New Zealand dollar dropped more than one per cent after the the nation's central bank on Tuesday presented proposed changes to existing mortgage lending rules to curb the current boom in house prices.
The kiwi fell to US$0.7027, its lowest level in three weeks, as the measure is seen as boosting the chance of a rate cut next month.