The dollar held firm on Friday as investors braced for U.S. interest rates to be higher for longer, while the yen was volatile, with incoming Bank of Japan Governor Kazuo Ueda saying it was appropriate to maintain an ultra-loose monetary policy.
Ueda, who was nominated earlier this month in a surprise move, warned that uncertainties regarding Japan's economic recovery remained very high and warranted the BOJ to maintain its ultra-loose monetary policy.
The yen was volatile on the day and swung between gains and losses against the dollar as investors parsed through the comments made by Ueda, who was speaking at the lower house confirmation hearing. It was last off by 0.03 per cent at 134.76 per dollar.
The hearing came after Japan's core consumer inflation hit a new 41 year high in January, putting pressure on the central bank to phase out its massive stimulus programme, according to data released on Friday.
Ueda's comments were not a surprise, according to analysts, and he stuck to BOJ's current stance.
OCBC currency strategist Christopher Wong said that Ueda was likely to adopt a gradual and moderate approach as he monitors further data to get a better sense of economic conditions in Japan.
It is still early days to develop an impression of his policy leaning at this point. The surprise choice of Ueda as next BOJ governor stoked expectations that the end to the unpopular yield curve control YCC policy would be around the corner.
The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, underscoring a still-tight labor market and a resilient U.S. economy.
The dollar has erased its year-to-date losses because of strong U.S. economic data and hawkish rhetoric from Fed officials.
The dollar index, which measures the U.S. currency against six other rivals, was up 0.019 per cent at 104.580 and set for a fourth week in a row. The index is up 2.5 per cent for the month.
While slower activity and higher inflation components seem to be making the task more difficult, the labour market remained strong, which suggests that any slowdown in growth will be very slow, according to strategists from Saxo Markets.
The euro was up 0.04 per cent at $1.0599, while the sterling was trading at $1.2016, up 0.02 per cent on the day. The Australian dollar was up 0.10 per cent to $0.681. The kiwi increased by 0.14 per cent to $0.624.