SYDNEY The yen languished near eight-month lows versus the dollar on Thursday as investors gave it a wide berth on expectations of more policy action in Japan, while revived hopes of a Greek loan deal saw the euro stage a dramatic turnaround.
The dollar hit 82.56 yen in early Asian trade, reaching highs not seen since April. It has surged more than 4 percent in the past 1-1/2 weeks in a move that is expected to continue into next month's election in Japan.
"Markets remain firmly focused on the prospects for a more aggressive post-election BoJ monetary policy stance, implying that the yen is likely to remain vulnerable in the near term," BNP Paribas strategists wrote in a client note.
"But we emphasize again that previous BOJ asset purchases have not been successful at weakening the yen on a sustained basis," they said, adding the recent sharp USD/JPY move should reverse in the coming months.
Trading in Asia will likely be driven by a preliminary reading of China's November manufacturing activity due around 0145 GMT. Markets are looking for further signs that China's economic slowdown has stabilised, so any disappointment could dampen risk appetite.
The euro also rose against the yen, scaling a near seven-month peak around 105.90 yen, bringing into view the April high of 108.00. Against the dollar, the single currency bought $1.2830 (804 pence), having staged a rebound from Wednesday's trough around $1.2736 (7980 pence).
Investors initially sold the euro on Wednesday after international lenders failed to reach a deal to release emergency aid for Greece, but quickly reversed those trades after German Chancellor Angela Merkel said a deal was still possible next Monday when they meet again.
"Efforts to avert a Greek default may provide short-term relief for the euro, but the measures will only help to buy more time as Greece persistently seeks further external assistance," said David Song, currency analyst at DailyFX, who is maintaining a bearish outlook for the single currency.
The Australian dollar was also better bid at $1.0369, off Wednesday's low of $1.0332. The move took the Aussie back to the middle of this month's $1.0283/1.0480 range.
Apart from China's preliminary PMI, a Spanish bond sale due later in the day will be closely watched.
Madrid has so far refrained from applying for aid that will trigger the European Central Bank's bond-buying programme, but traders say the risk of that happening should be enough to support the debt auction.
(Editing by John Mair)