The yen slipped from previous lows to a 13-month slump against the dollar yesterday on media reports reversing previous predictions that the Bank of Japan was due to cut rates.
The yen fell as far as ¥120.88 on the dollar during the day before regaining some ground to ¥120.72 while the euro gained around 0.15 per cent to ¥156.09 and $1.2927.
Most analysts had predicted that the Bank of Japan (BoJ) was due to increase borrowing costs a quarter per cent to 0.5 per cent this week.
The Japanese media has squashed this speculation, saying that the bank was likely to hold off this month until it receives more consumer spending data.
The ultra-low cost yen has encouraged carry trading, which has in turn continued to undermine the currency's true value.
"This has hurt the BoJ's credibility," Toru Umemoto of Barclays Capital told Reuters, adding that a ¥125 dollar was likely if rates remain unchanged.
"The carry trade has reached risky levels already and skipping a rate rise could lead to a further accumulation of carry trades. I'm worried there could be a crisis correction later."
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