SYDNEY (Reuters) - The yen held its ground against the dollar on Wednesday as doubts surfaced on whether the Bank of Japan will put into action bold plans to jumpstart the economy, while sterling languished at a seven-month low.
A delay in nominating a Bank of Japan governor has fanned talk of friction between Japan's prime minister and finance minister over who should run a central bank charged with taking aggressive action to beat deflation.
Japan's trade data due at 2350 GMT is shaping up to be the next focal point with a weak outcome likely to bolster efforts to reflate the economy.
The dollar, which has gained around 8 percent on the yen this year, stood at 93.55 having retreated from Monday's high of 94.22. But it still remained near a 33-month peak near 94.47 set on February 11.
The euro bought 125.20 yen after recovering from a dip to 124.56, in part thanks to a closely watched ZEW survey showing a jump in German investor and analyst sentiment to three-year highs.
That upbeat data also helped lift the euro against its U.S. counterpart, pushing the common currency to a near one-week high of $1.3396. It was last at $1.3385.
The ZEW report is a positive sign ahead of the more important euro zone flash PMIs on Thursday and Germany's IFO business sentiment on Friday, said Vassili Serebriakov, a strategist at BNP Paribas.
"We therefore continue to view any pullbacks in EUR/USD as corrective, with support coming from the November bullish daily trendline currently at 1.3280. We expect EUR/USD to rally to 1.3800 by the end of Q1," he said.
Against sterling, the euro touched a two-week high at 86.85 pence. Investors gave the pound a wide berth partly on growing speculation the UK could soon lose its prized triple-A credit rating.
The market was also waiting for minutes of the Bank of England's latest policy meeting, looking for signs on whether policymakers will continue to tolerate above-target inflation and a weaker pound.
Sterling traded at $1.5424, having plumbed a seven-month low at $1.5414 in New York.
Commodity currencies like the Australian and New Zealand currencies fared much better, with the Aussie dollar popping back above $1.0300. Still, it remained contained a slim $1.0200/0400 range seen for most of this month.
Christopher Vecchio, currency analyst at DailyFX said a fall below $1.0260/70 would be needed to confirm a breakdown. "With the downtrend swing highs coming in at $1.0460/80, our bias remains bearish against this zone. A break above implies a rebound back towards the highs above 1.0600."
Partly supporting the Aussie, minutes of the Reserve Bank of Australia February 5 policy meeting out on Tuesday suggested the central bank was in a wait-and-see-mode, rather than seeking to actively cut interest rates.
Editing by Wayne Cole