The yen strengthened against the US dollar on Friday, but still appeared on track for its biggest weekly decline since June after the latest US economic data eased fears of a recession and supported expectations of a gradual rate cut by the Federal Reserve.
The US dollar eased 0.8% against the Japanese yen to trade at 148.070, having hit a two-week high of 149.40 in the previous session.
Risk-sensitive currencies such as sterling strengthened as an improving economic outlook drove gains in equities.
Data on Thursday showed the number of Americans filing new applications for jobless benefits fell to a one-month low last week while US retail sales rose at the highest rate in 1-1/2 years in July, dashing expectations that the Fed might cut rates interest of 50 basis points (bps) next month.
"We side with the view that there is a slowdown in growth, inflation is slowing down and the Fed will start cutting rates, but it won't be a panic situation, which is where the narrative started to emerge a week or two ago," said Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International.
Traders are confident that the Fed will cut rates on September 18, but the focus of discussion is on the size of the cut after surprisingly slow US wages data pushed the possibility of a bigger cut of 50 basis points to 71% in early August.
The likelihood of such a move has dropped to 32%, according to CME Group's FedWatch tool.
The US dollar index, which measures the US dollar against six other major currencies, was down 0.3% to 102.75.
Sterling strengthened 0.4% to $1.2904, its highest since July 25 - after data showed British retail sales rose in July, partly driven by extra spending. The pound is on track for a weekly strengthening of 1.2%, its best performance in more than a month.
The euro strengthened 0.2% to $1.0993. The currency hit its highest level since January 3 earlier this week, helped by a drop in the US dollar after sluggish data.
