The yen rose across the board in foreign exchange trading early on Friday, recovering from a ten-week low against the dollar, as analysts speculated on a possible rate rise.

The dollar traded 0.6 per cent lower at ¥118.35 while the euro was down by more than a yen at ¥154.65, falling from an all-time record high of ¥158.06 on Wednesday.

Pacific currencies such as the New Zealand and Australian dollars also fell against the yen as traders warned that it had been pushed too low too fast in recent weeks.

Expectations that Japanese rates stood to rise were reinforced by media reports that the Bank of Japan may increase borrowing costs from 0.25 per cent on January 17th.

The value of the yen has been suppressed by carry trading, which has now begun to unwind on the expectations of higher yen-costs.

"Yen carry trades have accumulated significantly due to the BoJ's super-low interest rate policy," Toro Umemoto of Barclays Capital told Reuters.

"The BOJ could raise rates in January, which could bring another round of unwinding."