The currency pared earlier gains on speculation the drop in sentiment was enough to prevent the BOJ from raising its 0.5 percent benchmark interest rate this year, encouraging Japanese investors to buy higher-yielding assets overseas. The dollar traded near a three-week low versus the euro before a report economists forecast will show U.S. manufacturing shrank, weakening the Federal Reverse's case for raising borrowing costs.
The yen traded at 106.28 per dollar as of 10:45 a.m. in Tokyo after rising to 105.97, compared with 106.21 late in New York trading. It reached 104.99 yesterday, the highest since June 9. The currency also traded at 167.26 per euro after strengthening to 167.06 per euro from 167.32 yesterday. The dollar traded at $1.5737 per euro from $1.5755, after dropping yesterday to $1.5836, the weakest level since June 9.
The Tankan index of manufacturer sentiment slid to 5 points in June from 11 points in March, a third quarterly decline, the Bank of Japan said today in Tokyo. The median estimate of 32 economists surveyed by Bloomberg was for a drop to 3 points.
The yen lost 6.1 percent against the dollar in the second quarter as investors bought assets overseas. Japan's rate compares with 2 percent in the U.S., 8.25 percent in New Zealand and 7.25 percent in Australia. The European Central Bank's key rate is 4 percent.
Investors see a 30 percent chance Japan's central bank will raise the rate to 0.75 percent by December, according to calculations by JPMorgan Chase & Co. using interest-rate swaps. The odds are down from 34 percent before the Tankan report.
The 15-nation euro gained 6.6 percent versus the yen in the second quarter, the most since June 2003. The euro declined 0.3 percent against the dollar in the period after rising 8.2 percent in the first quarter.