The dollar fell to an eight-month low against the yen on Friday, hurt by selling from Japanese exporters and concerns that U.S. GDP data would add to signs of fading momentum for the U.S. economic recovery.
In Asian trade, the dollar's fall was primarily driven by month-end selling from Japanese exporters, which overwhelmed buying from several new Japanese investment funds launched on Friday.
At the start of this week, it looked like there would be an end to the dollar/yen's downtrend but now it looks as if there will be no change and it is set to end the month of July lower, said Kakuya Kojoh, the head of securities department at Nissan Century Securities.
The dollar will likely test 86 yen. It could even fall below 85 yen next week.
Dollar bears are looking to U.S. second-quarter GDP due at 1230 GMT as a further opportunity to sell the currency, with economists forecasting growth to slow to 2.5 percent in the three months to June from 2.7 percent in the first quarter. [ECI/US]
The GDP data will be followed by U.S. manufacturing and job figures next week.
Today we saw some month-end flows, in both directions, which dictated price moves today. But when the dust settles, the market will focus on economic fundamentals, said Hideaki Inoue, manager of forex at Mitsubishi Trust and Banking.
The dollar slipped 0.6 percent versus the yen to an eight-month low of 86.25 yen JPY=.
The yen showed no response to an unexpected fall in Japanese industrial production. The market also shrugged off the news that a group of Japanese lawmakers called for the Bank of Japan to set an inflation target of two to three percent.
The dollar has been hobbled by worries over the U.S. economy, after a raft of U.S. economic data in the past month undershot market expectations.
St. Louis Federal Reserve Bank President James Bullard said on Thursday he is worried about the risks that the United States could fall into a Japan-style quagmire of falling prices and investment.
Although his comments had only a marginal impact on the currency market, some traders were surprised by the candid tone.
The dollar also remained not far from a 12-week low against the euro, which benefited from a jump in euro-zone economic sentiment to a 28-month high and a decline in German unemployment on Thursday.
The euro slipped 0.1 percent against the dollar in early Asian trade to $1.3060 EUR=, close to a 12-week high of $1.3107 marked on Thursday.
The next key resistance level for the single currency is seen at $1.3125, the 38.2 percent Fibonacci retracement of the peak-to-trough move from November 2009 to June.
The dollar index .DXY stood at 81.62, just a hair above three-month low of 81.488.
The Australian dollar slipped 0.3 percent to $0.8993 AUD=D4, as Chinese and other Asian shares fell.
But the safe-haven Swiss franc rose 0.1 percent, building on the 1.5 percent gain it made on Thursday. The franc rose to as high as 1.0388 franc per dollar CHF=, near a five-month peak of 1.0374 hit on Thursday. (Editing by Edwina Gibbs)