TOKYO: The yen inched lower on Thursday after commodity currencies briefly shot up on hopes China will soon ease policy, and as flows from Japanese importers and 'toushin' investment trusts pressured it against the U.S. dollar, traders said.
The euro is set to come under fresh pressure and test its long-standing support at $1.30 later in the session as Spain tests investors' confidence in its debt-ridden economy when it tries to sell new two- and 10-year bonds.
The dollar rose 0.2 percent to 81.38 yen, near its highest level in about 10 days, with traders citing flows related to a launch of a large toushin by a Japan investment bank.
"The dollar was pushed towards 80 yen this week, but its solid rebound well above 81 yen underscores its underlying strength making it hard for speculators to bet against it," said Bank of Tokyo-Mitsubishi UFJ analyst Teppei Ino.
The yen grappled with the top of the Ichimoku cloud on the daily charts, with traders citing stop losses above 81.60 and mild resistance at the 21-day moving average at 81.87. Key resistance loomed at the Ichimoku kijun line at 82.24.
"Toushin-related inflows may also be a factor helping (the dollar) rise in the Asian session," Ino said. Some traders also cited dollar-buying into the local fix by Japanese importers that helped support the greenback against the yen.
Tokyo importers' purchases of fossil fuels have soared in the wake of the Fukushima nuclear disaster in March 2011 as all but one of the country's 54 nuclear reactors have gone offline.
The Australian dollar gained 0.3 percent to 84.40 yen, trading in the middle of the recent ranges against the yen, helped by a broader jump in the Aussie on a China state media report which at first raised hopes of an immediate cut to banks' reserve requirements.
But the full report by Xinhua merely said the Chinese central bank had pledged to increase liquidity supply "at an appropriate time."
This saw the Aussie dollar jump about 0.3 percent to a session high of $1.0388, before ceding some ground to last trade slightly higher at $1.0359, a touch above its New York close of $1.0348.
ALL EYES ON SPAIN
Trader attention turned firmly to the key Spanish bond auction, which follows an abrupt relaxation of its deficit targets earlier this month and comes amid mounting doubts about the health of the country's banking system.
Thursday's auction comes after the 10-year bond yield jumped above 6 percent earlier this week, fuelling worries over the sustainablity of Spanish public finances.
"The market direction will once again likely be steered by euro zone peripheral stress. The big litmus test will be today's Spain bond auctions," analysts at BNP Paribas wrote in a note.
"A decent result, especially as liquidity improves following Easter holidays, could be a swing factor," they said.
The euro did not move a notch, standing firm at $1.3118, having recovered from a dip to $1.3058. It looked well supported around $1.3000, but could struggle above $1.3200 with the April 12 high of $1.3213 likely to prove a stiff resistance.
The modest recovery in the euro saw the dollar index retreat to 79.578 from Wednesday's high of 79.861.