"COVID worries are definitely playing a role in increasing demand for safe havens including the yen, and because South Africa is the location of this new variant, that's an obvious reason to avoid the rand," said Shinichiro Kadota, senior FX strategist at Barclays in Tokyo.Meanwhile, the euro rose 0.12% to $1.12185, stabilising after hitting its lowest level in nearly 17 months earlier in the week at $1.1186.
The dollar index - which measures the greenback against six peers, including the yen, euro and pound sterling - edged further away from Wednesday's 96.938 - its highest level in nearly 17 months. It last traded at 96.715.Traders have ramped up bets that an increasingly hawkish Federal Reserve will lift rates by the middle of next year, while central banks in Europe, Japan and elsewhere stick to more dovish stances.
"If the COVID situation worsens, then dollar-yen could go down further, but otherwise the monetary policy divergence is definitely going to be weighing on the yen in the medium term," said Kadota, who predicts dollar-yen will strengthen to 116 and beyond by the middle of next year. On the flip side, 114 should provide a floor for the currency pair in the near term, "unless the world really changes for the worse," he said.
Last week, Bank of Japan governor Haruhiko Kuroda reiterated his commitment to massive monetary stimulus, adding that the central bank stands ready to ramp it up further if necessary.
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