TOKYO, May 2 - The yen continued its steep descent on Tuesday, reaching a 15-year low to the euro, as the implications of a steadfastly dovish Bank of Japan kept foreign exchange markets busy engaging in so-called 'carry-trades'.
The Aussie dollar kept near the middle of its recent trading range with the greenback ahead of the Reserve Bank of Australia's (RBA) policy decision at 0430 GMT, with money markets positioned for a second meeting with no change. However, there remains a risk of another hike in the second half of the year.
The euro was steady at 150.965 yen after earlier touching 151.03 for the first time since September 2008.
The greenback was about flat at 137.375 yen, and earlier rose to 137.58 for the first time since March 8. A move above 137.90 would be the highest level this year.
"The sign that the BOJ is not going to change its negative interest rate policy any time soon gave the green light for speculators to put yen carry trades back on," said Naka Matsuzawa, chief Japan macro strategist at Nomura Securities.
The sale of First Republic Bank's (FRC.N) assets to JPMorgan Chase & Co (JPM.N) also gave more confidence to investors over the outlook for the dollar, Matsuzawa said.
"The odds of the Fed continuing on the rate hike process, rather than rate cuts, is now a bit higher."
The single currency was little changed against the dollar at 1.0982, trading near the bottom of its range of the past week after data overnight showed U.S. manufacturing pulled off a three-year low last month despite a build-up of inflationary pressures.
That keeps the Federal Reserve on track to hike rates by a quarter point on Wednesday.
Investors will focus on whether the U.S. central bank indicates that it expects to pause rate increases after May, or if it keeps alive the possibility of another hike in June or later.
A potentially key clue to that will come on Friday, with the release of monthly employment data.
The European Central Bank (ECB), meanwhile, is widely expected to raise rates for a seventh straight meeting the following day, with a 50 basis-point increase on the table.
That lifted the euro to a more than one-year peak at $1.1096 last week.
By contrast, the BOJ on Friday opted to leave ultra-easy stimulus settings in place and embarked on a review of its monetary policy that could take 1-1/2 years, suggesting no hurry at all to normalize policy.
The ECB and Fed decisions, along with the U.S. jobs data all come when Japan will be observing the Golden Week holidays, which run from Wednesday through to the end of the weekend.
At the RBA, traders are laying 87% odds for no change to policy, although about 11 bps of tightening is priced for the August meeting.
The Aussie ticked up 0.11% to $0.6638, but not straying far from its anchor since last Tuesday around $0.66.