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Argentina returns to global debt markets after 15-years

BUENOS AIRES (Reuters) - Marking a rare bright spot among gloomy emerging markets, Argentina sold $16.5 billion of sovereign debt on Tuesday in its first international bond issue since its record 2002 default.

Most proceeds from the auction, which was four times oversubscribed, will go to finally settling Argentina's messy legal dispute with investors over unpaid debt that emerged from the $100 billion default that plunged millions of middle class Argentines into poverty.

New President Mauricio Macri hopes closing that painful chapter in the country's history will bring down borrowing costs across Latin America's third largest economy and attract the investment needed to kickstart growth.

Investors seemed convinced of his strategy on Tuesday. Argentina received offers worth $68.6 billion from investors around the world, two third of them based in the United States, Finance Minister Alfonso Prat-Gay said late on Tuesday.

"We could even have issued twice as many bonds," Prat-Gay told a news conference in Buenos Aires. "On Friday, when we receive the funds in our account, we will pay the $9.3 billion owed to holdouts."

Argentina managed to sell the bonds at yields at the lower end of its price guidance due to the strong interest.

It sold $2.75 billion worth of 3-year notes at 6.25 percent, $4.5 billion of 5-year bills at 6.87 percent, $6.5 billion of 10-year bonds at 7.5 percent and $2.75 billion of 30-year bonds at 7.62 percent.

"Argentina is a grab-fest out there," one New York-based investor told Thomson Reuters publication IFR earlier in the day.

Macri, a free markets champion, won the Argentine presidency last year on promises of opening and restarting the stagnant economy. He argued settling with the "holdout" creditors from an earlier debt restructuring and ending Argentina's status as a markets pariah was key.

That was a major contrast with his predecessor as president, Cristina Fernandez, who refused to negotiate with hedge funds that rejected the country's 2005 and 2010 restructurings which offered about 30 cents on the dollar.

The funds sued in the U.S. courts for full repayment of the defaulted Argentine bonds they still hold. Fernandez called them "vultures" for picking on the carcass of the Argentine economy.

"The fact that a government with only four months in power has solved this issue, which had been pending for more than a decade, is a major success for Macri," said Ignacio Labaqui, who analyzes Argentina for consultancy Medley Global Advisors.

Better access to financing is expected to help Macri carry out his open-market policy reforms without the severe spending cuts that have gotten previous Argentine leader thrown out of office.

Fed's Rosengren takes another shot at pessimistic markets

NEW BRITAIN, Conn. (Reuters) - The Federal Reserve is set to hike interest rates more rapidly than investors currently expect, a top Fed official said on Monday, again pushing back on what he said was investors' too pessimistic view of the U.S. economy and monetary policy.

It was the second time in as many weeks that Boston Fed President Eric Rosengren warned that futures markets, which see only one modest rate hike in each of the next few years, are off the mark. He said U.S. inflation was now "much closer" to the Fed's goal, downplayed weak growth in the first quarter, and said the economy is "fundamentally sound."

The comments suggest that even the Fed's dovish wing is uncomfortable with deep skepticism in markets that the central bank will be able pull off its planned tightening cycle, in the face of an overseas slowdown and paltry global demand.

"While I believe that gradual ... rate increases are absolutely appropriate, I do not see that the risks are so elevated, nor the outlook so pessimistic, as to justify the exceptionally shallow interest rate path currently reflected in financial futures markets," said Rosengren, a voter on policy this year and among the Fed's "doves," or those who typically want to keep rates lower.

"I would prefer that the Federal Reserve not risk making the mistake of significantly overshooting the full employment level, resulting in the need to rapidly raise interest rates – with potentially disruptive effects and an increased risk of a recession," he told students at Central Connecticut State University.

The Fed raised rates modestly from near zero in December, its first policy tightening in nearly a decade. While futures markets imply no further hikes until December, economists polled by Reuters see June as the most likely time for a second move. Fed projections imply about two more hikes before year end.

While Rosengren did not say when he expects the Fed to move, his confident speech appeared meant to keep the door open to a June hike.

He said that strong jobs growth and more labor market participation offset what will likely turn out to be less than 1 percent gross domestic product growth in the first quarter. He also noted the Fed's preferred price measure, at 1.7 percent, is headed toward the central bank's 2-percent goal.

"While there have been significant headwinds from abroad, and market turbulence related to those headwinds, I view the U.S. economy as fundamentally sound and likely to perform better than the domestic economies of most trading partners," Rosengren said.

Market predictions for rates have been consistently more cautious than that of the Fed, which has had to backtrack on more hawkish forecasts over the last few years.

Yet Rosengren took one last shot at futures markets, saying that such an extremely gradual path of rate hikes would risk overheating the economy.

He said that while it is "quite appropriate to probe how low" unemployment, now at 5 percent, can go, such "dour interest rate projections do not seem consistent with the outlook for the economy that I and many others share."

China looks to broaden free trade agreement with New Zealand

BEIJING (Reuters) - China aims to expand an existing free trade agreement with New Zealand, Premier Li Keqiang told Prime Minister John Key during a meeting in Beijing, state media said on Tuesday.

New Zealand was the first OECD country to sign a free trade agreement with China, in 2008, and China became New Zealand's largest export market in 2014.

"China will work to expand trade within the framework of the FTA and create conditions on broadening the agreement," the official China Daily paraphrased Li as telling Key.

China will also expand cooperation overall with New Zealand, in areas such as agriculture and food safety, Li added.

The report quoted Key as saying he will also work to upgrade the free trade agreement. The newspaper gave no further details.

The move comes as New Zealand and 11 other advanced economies accounting for 40 percent of the global economy have signed the U.S.-led Trans-Pacific Partnership (TPP), to which China is not a party.

Beijing has been keen to shore up bilateral trade deals and promote the 16-member Regional Comprehensive Economic Partnership (RCEP) in the face of TPP, concerned by Washington's effort to reshape and liberalize Asia's trade rules.

Though the TPP faces opposition in the U.S. Congress, China could lose some ground to manufacturing competitors such as Vietnam if the deal goes into force, as it would expand duty-free access among members.

Trump's jobs homecoming a long shot even in manufacturing hot spots

JACKSONVILLE, Fla (Reuters) - When U.S. manufacturing employment peaked, Jimmy Carter was president, inflation was 11 percent, and craftsmen at Frontier Contact Lenses made the company's products one at a time on diamond-tipped lathes.

As presidential candidates promise to reclaim jobs lost in the intervening decades, they might want to visit the company now. Bought by Johnson & Johnson (N:JNJ) in 1981, the fully automated factory allows four workers to produce in a 12-hour shift what more labor-intensive methods produced in a year. The Jacksonville plant and one in Ireland make 4 billion soft contacts a year, and between the robots and lasers and computer algorithms no worker touches the product from the start of the process through final packaging.

"I don't think you could even make 4 billion lenses" using the old method, said David Turner, vice president of research and development for Johnson & Johnson Vision Care, Inc. "You'd need a guy with a lathe in every town."

Since peaking at 19.5 million in 1979, the number of U.S. manufacturing jobs has fallen 37 percent to around 12.2 million as of March, or just over 10 percent of the private sector workforce. (Graphic: http://tmsnrt.rs/1WqpioK)

That may be as good as it gets. Despite the promises made on the campaign trail by Republican frontrunner Donald Trump and other candidates, the next president will find it hard to raise manufacturing's share of a U.S. labor force that keeps shifting toward services.

While much of the jobs debate has centered on trade pacts that Democrats and Republicans have backed over the last quarter century, both successful and struggling companies and sectors offer evidence of long-term trends that neither sharp trade negotiators nor aggressive political leaders can easily reverse.

Even critics of trade deals acknowledge that labor intensive industries, such as textiles, which once employed hundreds of thousands of less-skilled workers, are probably gone for good. Technology continues to diminish the share of labor in production and its spread around the world has made other nations - notably China, but also Korea, Brazil, Mexico and former Soviet bloc countries - competitive both as exporters and in their own markets. Investment worldwide is drifting steadily toward services, according to the United Nations Conference on Trade and Development, and Americans are spending relatively less of their income on manufactured goods.

A Reuters analysis of federal data for 1,267 categories of goods shows that the United States has been running a trade deficit in more than 500 of them since at least 1992 - before the North American Free Trade Agreement came into force or China joined the World Trade Organization, events often cited as turning points for U.S. manufacturing.

Since the 2007-2009 recession manufacturing has added about 800,000 jobs, but that has lagged overall job growth. As a result manufacturing's share of private employment has continued to fall, from about 11 percent since the recession ended.

"The move toward a more global market hurts the marginal, low-skilled worker, but it was inevitable and you cannot roll it back," said Brookings Institution senior fellow Barry Bosworth.

At CareerSource Northeast Florida, a job development group, President Bruce Ferguson, Jr. said by necessity he focused on finding a "path" for entry level service sector employees to move up a career ladder, because services are where the growth is.

"The raw (manufacturing) numbers don't look anything like the service sector and they never will," he said.

VOTER ANGST AND PROMISES

A majority of 6,500 Americans surveyed in March as part of Reuters/Ipsos 2016 campaign polling acknowledged that free trade brings lower prices, but also saw it as a drag on wages and jobs and an "important" issue for the next president to confront.

Tapping such concerns, Trump has promised punitive tariffs to "bring back" jobs for those left behind in the current recovery, particularly the roughly two thirds of Americans without a college degree.

Former Secretary of State Hillary Clinton switched gears as a candidate to oppose a major Pacific trade deal and promises billions in public support for manufacturing. Her Democratic rival Bernie Sanders calls for worker protection against what he considers unfair trade, while Republican Ted Cruz has focused on trimming government red tape.

However, playing tough on trade carries some risks and there are limits to what trade talks and tariffs can accomplish. The U.S. steel industry is a case in point.

The American Iron and Steel Institute estimates around 12,000 jobs were lost to a recent jump in imports, mainly from China. It reckons those jobs could be recovered with steps, such as the anti-dumping duties imposed by Washington late last year.

That pales, however, in comparison with more than 200,000 jobs that the sector has lost since the early 1980s, some because of imports, but some because the amount of labor needed to produce a ton of steel has fallen from 10 hours to less than two.

"There has been a short term loss that is definitely attributable to imports, while a longer term trend reflects technological innovation," said Kevin Dempsey, the institute's senior vice president.

Such dynamic is not limited to old industries like steel.

Florida is home to successful manufacturers big and small in a wide range of sectors, which export nearly half of their output - double the national average. Yet, as is the case nationally, the share of jobs available to those with a high school degree has been shrinking since 2000, according to federal data, and wages have been stagnant.

Johnson & Johnson Vision Care's recent approval of a $300 million expansion, which added some 100 jobs, cements the company's U.S. presence, but also shows how technology and innovation reshape the landscape.

The company's local workforce has risen to around 1,700, but about 60 percent of that are white collar and non-manufacturing jobs - from research positions for PhD scientists to those in sales and a highly automated shipping operation.

Florida development officials say the trend is clear: manufacturers keep cutting the labor content of their products and each round of investment tends to drive up the skill levels that workers need.

That may benefit the state's economy, but acts as a reality check for workers who hope that the November 8 presidential vote can reverse decades-old trends.

"How do you evaluate a company that says we will spend a lot of money and make the workforce more qualified but not create many jobs?" said Aaron Bowman, senior vice president for business development at JAXUSA Partnership, a regional economic development agency and division of the local chamber of commerce. "Over time you see more projects that bring in fewer jobs but a bigger bang."

With plenty of punch, central bankers wait in vain for the world to drink

WASHINGTON/FRANKFURT (Reuters) - Central bankers usually worry about when to remove the punch bowl of cheap finance but when they gather in Washington, D.C. this week they will face a different problem: how to force the world to drink.

Amid a flood of cheap money and a historic experiment with negative interest rates, households, corporations and banks in the developed world have turned their backs on borrowing. Credit growth has flat-lined and an array of metrics indicate the world has become a more cautious place, potentially upending whatever bang for the buck central banks might expect.

In the U.S. households are paying down mortgages instead of borrowing against homes to fund consumption, altering behavior that arguably helped fuel the 2007 financial crisis but that also contributed to economic growth. A Chicago Federal Reserve Bank composite index of household, bank and corporate leverage has been below average for nearly four years.

European and U.S. companies are socking away cash and the Bank of Japan's descent into negative rates has yet to boost consumption, corporate investment, or even faith in an economic rebound.

Even as global liquidity expands, the appetite for it remains moribund.

“You can’t create demand from thin air. What’s needed is to create an environment in which companies and households feel confident to spend,” said a senior Japanese policymaker directly involved in Group of 20 negotiations that will continue in Washington this week.

“There’s a growing sense globally that monetary policy alone cannot cure all problems.”

HOW TO INFLATE DEMAND

The policymakers assembled in Washington will be focused on how to inflate demand. Along with more cautious consumers and companies in developed nations, China is in retreat and likely to scale down investment and purchases of raw materials as its economic transition continues.

The IMF's preferred and oft-repeated solution is for government spending to pick up the slack, particularly on infrastructure, as well as for labor market and other reforms that will make economies grow faster because they are more efficient.

Absent those measures, the economic outlook is likely to remain mediocre. The IMF cut its growth forecast for the fourth time in a year.

Central bankers in major economies agree that further policy moves on their part may have a limited impact, and they appear increasingly joined at the hip.

Though the Fed began tightening policy in December, its first interest rate rise in a decade was followed by a renewed sense of caution about sagging global demand and whether the U.S. policy could go its own way.

Further rate hikes now appear on hold. The European Central Bank and Bank of Japan are discussing further monetary easing.

For now, said Adam Posen, president of the Peterson Institute for International Economics, the U.S. appeared locked into a "slower yet sustainable" path of 2.0 percent growth. Business investment is lagging with no expectation of a rapid change, and households have dialed back in what may be an enduring shift, he said.

Savings rates and household wealth are rising, debt payments as a percentage of income are falling and consumption growth remains modest.

"I do think we should entertain (the idea) that this is a substantial change in household behavior and that means a much less leveraged consumer than in the past," Posen said.

PRUDENCE IN BERLIN, CAUTION IN BANKS

In the power center of Europe, prudence also rules despite the European Central Bank's effort to goad more spending.

German public officials have for several years resisted calls to use their fiscal power, access to cheap credit, and large international trade surpluses to boost demand. German corporations are being stingy as well, increasing corporate savings by more than 15 percent since 2012, and trimming investment.

The ECB's 1.7 trillion euro program of quantitative easing has helped buoy the housing market, but has not led to a surge of consumer spending or business investment to levels that would increase growth and lower unemployment.

“It is hard to see where the growth in consumption should come from," said Carsten Brzeski, an economist with ING bank in Frankfurt, who said corporate and household behavior both reflected the dim outlook for economic growth.

"Deposits in the corporate sector have increased across the euro zone despite the low interest rates. They are keeping their money rather than investing.”

There could be an upside. If companies and households have stocked ample cash it would provide a buffer against any future downturn and potentially make the next recession less severe than it otherwise might have been.

To that extent, slower, more careful growth now may mean a more stable and less severe business cycle, just the sort of outcome envisioned in reforms efforts undertaken in the wake of the global financial crisis of 2007-2009.

The Geneva-based Bank for International Settlements, the central banks' central bank, has acknowledged that the array of new capital and leverage requirements imposed on the world's commercial banks in recent years would come at a cost.

For every extra percentage point of capital banks are forced to raise, for example, the BIS estimated that economic output would fall by 0.09 percentage points, with a similar drop associated with the imposition of limits on leverage.

But the benefits of a more stable financial system would be worth it in the long run by reducing the risk of even more costly crises, the BIS found, a conclusion shared by the Fed and other major central banks, and reflected in the stiffening of bank regulatory rules.

With those rules limiting economic growth, and companies and households also reluctant to spend, the issue under discussion in Washington is whether the post-crisis mood of caution has become a risk in itself.

In its annual report on global financial stability on Wednesday, IMF officials laid out what is needed for a "successful normalization" of world economic conditions.

At the top of the list?

"Economic risk taking in the systemic advanced economies rebounds...Private investment increases by 4.0 percent while private consumption rises by 1.0 percent in fall of the systemic advanced economies over two years."

BOJ's Harada: natural to ease policy immediately if big risks materialise

TOKYO/SHIMONOSEKI, Japan (Reuters) - Bank of Japan board member Yutaka Harada said it is 'natural' to ease monetary policy immediately if there are big economic risks and did not rule out cutting interest rates further into negative territory.

Harada said he could not say whether or not such risks have materialised now, but the BOJ can combine its monetary policy tools in several different ways if needed.

"If big risks materialise, it would be only natural to ease monetary policy right away," Harada said after meeting business leaders in Shimonoseki, southern Japan.

It is difficult to determine whether or not recent yen gains are in line with economic fundamentals, but a rising currency does weaken upward pressure on prices in Japan, he said.

Harada, whose comments come amid lingering speculation the BOJ could ease policy as soon as this month in response to recent gains in the yen, said there are delays in meeting the central bank's 2 percent price goal.

He later told reporters that his comments did not mean a delay in achieving the price target by fiscal first half in 2017.

The BOJ's next two-day policy meeting ends on April 28. Policymakers will likely debate the possibility of easing monetary policy further at this meeting, sources familiar with their thinking said.

If the central bank eases policy, it would more likely increase asset purchases than cut interest rates, the sources said, as financial institutions are still adjusting to a negative rate policy deployed in January.

The minus rate policy now entails a charge of 0.1 percent interest on a small portion of commercial bank reserves.

The BOJ's adoption of a massive asset-buying programme in April 2013 was intended to spur inflation expectations, and in turn, encourage households and firms to spend.

That has failed to materialise, forcing the central bank to turn to negative rates to hit its 2 percent inflation target.

In January the BOJ pushed back its time frame for hitting its inflation target for the fourth time, and economists say another delay is possible.

Harada said Japan's household spending survey, which is a measure of consumer spending from the demand side, has fallen more than the government's estimates of consumption from the supply side.

Data from the supply side shows consumption is falling at a more moderate pace, which may be a more accurate description of what is going on in the economy, he said.

Australia economy keeps growing as worst of mining drag fades: Reuters poll

SYDNEY (Reuters) - Australia's economy is seen weathering an unwelcome rise in the local dollar and uncertainty over China this year, while the worst fallout from a mining downturn may finally be over.

The latest Reuters poll of analysts expects Australia's A$1.6 trillion ($1.2 trillion) of gross domestic product (GDP) to expand 2.6 percent this year, unchanged from the previous poll. Growth was forecast at a solid 2.9 percent for 2017.

That would actually be a step down from last year when the economy surprised everyone by expanding at a 3 percent pace, well above previous' forecasts of 2.3 percent.

Gains in consumer spending, new home building and export volumes all played a part in the better outcome. The improving mood was clear in a closely watched survey of Australian business out this week that showed firms were enjoying the best conditions in eight years.

"A jump in both business conditions and confidence provides more assurance that the Australian economy is weathering the global challenges well, and is successfully transitioning through the end of the mining boom," said Alan Oster, chief economist at National Australia Bank.

The unwinding of a once-in-a-century bonanza in mining investment has taken a chunk out of growth in recent years, while a slump in commodity prices has eaten into export earnings, company profits, wages and tax revenues.

Yet the Reserve Bank of Australia (RBA) estimates that the drag on growth from mining will peak this year and ease thereafter. Some are even more optimistic.

"In our view the local economy is about three quarters of the way through the adjustment path involving the decline in mining related investment," says Michael Workman, a senior economist at Commonwealth Bank of Australia.

"Accommodative monetary and fiscal policy settings have assisted with the adjustment by boosting interest rate sensitive areas of the economy," he added. "The lower Aussie has also lifted activity in education, tourism and accommodation."

A recent bounce in the local dollar has undone a little of that stimulus, spurring speculation the RBA might cut interest rates from an already record low of 2 percent.

A potential trigger for an easing could come later in April when inflation figures for the first quarter are likely to show underlying inflation stood at the very floor of the RBA's 2 to 3 percent target band.

The outlook is also benign with analysts predicting consumer price inflation would run at 1.9 percent this year, down from 2.3 percent expected in the last poll.

They also assume Australia will dodge the deflation that so bedevil Europe and Japan, with inflation seen rising to 2.4 percent over 2017.

(Polling by Khushboo Mittal and Shaloo Shrivastava; Editing by Michael Perry)

Greek talks with IMF/EU lenders drag on, compromise seen: sources

ATHENS (Reuters) - Greece and its international lenders were edging closer to a compromise on signing off on a review of bailout reforms which could unlock more aid to the country, government sources said on Monday, after marathon talks with creditors.

Just over ten hours of overnight negotiations between Athens and its lenders - the European Commission, the European Central Bank, European Stability Mechanism and the International Monetary Fund - broke off shortly before 0400 GMT. They were scheduled to resume later Monday.

"There are some small details to settle on the fiscal side of things .. We are very close," a government source said. Divergence remained over pension reforms and regulating non-performing loans, the source added.

The review has dragged on for months mainly due to a rift among the lenders over Greece's projected fiscal shortfall by 2018 - initially seen at 3 percent by the EU, 1 percent by Athens and 4.5 percent by the IMF.

Athens and its lenders have agreed to use 3 percent as the baseline scenario in the Athens-based talks.

But the EU and the IMF are still at odds on whether Athens could achieve a 3.5 percent primary surplus - budget balance before debt service payments - in 2018, an official participating in the talks told Reuters.

The IMF, which will decide whether to co-finance Greece's third bailout after the review and in light of how much debt relief Greece receives, believes Athens will miss its 2018 surplus target and settle at 1.5 percent, even if it implements measures worth 3 percent of GDP, the official said.

EU institutions believed the target was feasible. Faced with a huge refugee crisis - which has catapulted Greece to the forefront of a massive refugee influx into Europe in the past year, the EU is keen to resolve the financing logjam swiftly.

A positive review will unlock up to five billion euros in aid. Athens needs the money to repay 3.5 billion euros to the International Monetary Fund and the European Central Bank in July, as well as unpaid domestic bills.

Prime Minister Alexis Tsipras, who has a fragile parliamentary majority, is aiming for a compromise before a euro zone finance ministers' meeting on April 22.

He hopes the conclusion of the review will send a positive signal to markets and coax back investors, while a debt restructuring will convince Greeks that their sacrifices are paying off after six years of belt-tightening.

Yen touches fresh 17-month highs, draws warning from Tokyo

Demand for the yen showed little signs of abating on Monday, with the currency reaching a fresh 17-month high, prompting the Japanese government to warn that it could take steps to weaken the exchange rate.

Chief Cabinet Secretary Yoshihide Suga told a news conference the government was closely monitoring the foreign exchange market with a sense of urgency, noting the yen moves were one-sided and speculative.

The dollar fell as far as 107.63 yen , surpassing last week's trough of 107.67 and extending last week's 3.3 percent drop. It has since drifted back to 107.91, down 0.2 percent on the day.

Analysts said part of the reason for the yen's eye-catching rally was due to the unwinding of very bearish positions as investors gave up on a hike in U.S. interest rates this year.

"If there are clearer signs that a rate hike by the Federal Reserve is imminent, the dollar/yen could find a bottom. But it seems like that has to wait for some time," said Masatoshi Omata, senior client manager of forex trading at Resona Bank.

The unwelcome gain in the yen has increased the pressure on Japanese authorities to take steps to deal with it.

Japan's top government spokesman said the Group of 20's agreement to avoid competitive currency devaluation does not mean Japan cannot intervene in response to one-sided currency moves.

Yet many traders say verbal intervention would have limited impact given that the yen is hardly strong at current levels.

Credit Suisse (SIX:CSGN) said the yen was still "rather cheap" by valuation even after last week's surge, with its currency matrix putting the long-term fair value near 90.00.

"It will be difficult for the BOJ to sell the JPY as it is deemed as undervalued," said Koon How Heng, an FX analyst at Credit Suisse.

The euro bought 122.95 yen (EURJPY=R), having shed 3.1 percent last week while the sterling fell to 152.08 yen (GBPJPY=), near 2 1/2-year low of 151.88 touched on Thursday.

Against the greenback, the common currency stood at $1.1410 , not far from a six-month peak of $1.1454.

Another currency in favour is the Canadian dollar, which posted its best weekly performance in over three weeks on Friday as oil prices jumped.

The loonie was last at C$1.2993 per U.S. dollar , not far off a one-week high of C$1.2952 set on Friday.

U.S. crude (CLc1) is up over 0.3 percent early on Monday, extending Friday's 6.6 percent surge on hopes that global oversupply may be approaching a tipping point after nearly two years.

Currencies showed muted a response to data showing China's consumer price inflation was less than expected in March, flattening out after a four-month strengthening trend.

Yen stalls as finance minister warns on intervention

Gains for stock markets and a warning of the chances of intervention from Japan's finance minister knocked back the yen on Friday after a week of startling gains.

The yen surged at one point by as much as 2 percent against the dollar on Thursday, and Minister Taro Aso responded early on Friday by warning rapid currency moves were "undesirable," that the yen's were "one-sided" and that Japan would take steps as needed.

That is language that Tokyo has used in the past to flag intervention, and the yen's run to 17-month highs against the dollar has required investors to believe that it would hold fire at least until after next week's G20 meetings in Washington.

"Of course there is some fear in the market," said Manuel Oliveri, a strategist at Credit Agricole (PA:CAGR) in London.

"But one has to bear in mind that there is the G20 agreement not to, and that to work any intervention would need to be large and really that means it would need the support of the Fed and the European Central Bank."

By 0738 GMT, the yen had lost 0.7 percent at 108.92 yen per dollar, still up more than 2 percent on the week and around 10 percent on the year so far.

The dollar was higher across the board (DXY) after taking some comfort from Federal Reserve Chair Janet Yellen's promise on Thursday that the U.S. central bank was on course to tighten rates gradually going forward.

Yellen's statement last week that the Fed should proceed cautiously in light of looming global risks to the U.S. economy have been at the heart of sharp falls over the past 10 days for the dollar against the euro and yen.

Both of those currencies have been treated as safe havens by investors sharing growing concerns that much of the developed world is falling into a debilitating cycle of deflation that central banks are powerless to stop.

The dollar inched up 0.1 percent to $1.1380 per euro in early European trade.

"This is really just a bit of Friday respite," said a dealer with one international bank in London. "Where we go next week seems set to depend on risk appetite again. As long as stocks are falling, the dollar will be a sell on any rallies."

A Reuters poll of strategists released on Thursday showed the broader dollar rally that began in mid-2014 has nearly run its course and will only gain slightly over the coming year, with respondents saying risks to their forecasts are tilted more to the downside.

"We think a combination of falling US real rates and elevated market volatility are weighing on the dollar against the current account surplus-backed euro and yen," analysts from BNP Paribas (PA:BNPP) said in a note.

"(But) we remain constructive on the dollar against the Australian and Canadian dollars."