The yen fell 0.2% to 143.43 to the dollar, hovering just above a 24-year low hit earlier this month. Rising energy imports by Japan saw the country log a record-high trade deficit of 2.82 trillion yen ($1.97 billion) in August.
The yen is among the worst-performing Asian currencies this year, hit chiefly by the growing gap between U.S. and Japanese interest rates. The Bank of Japan has signaled no intent to raise rates this year, given that the Japanese economy is still reeling from the effects of the COVID-19 pandemic.
Broader Asian currencies also retreated, while the dollar stuck to near 20-year highs after data showed U.S. producer price inflation mirrored strength seen earlier in the consumer price index.
The dollar indexx and futures both rose 0.1%. With U.S. inflation remaining stubbornly high in August, the Fed now has more impetus to keep raising rates sharply.
Markets are now pricing in the possibility that the Fed will hike rates by as much as 100 basis points next week, although a majority of traders expect a 75 basis point hike.
China's yuan weakened 0.1% but traded near a two-year low hit last month. The People’s Bank of China (PBoC) on Thursday paused its monetary easing measures, as a hawkish outlook for U.S. interest rates limited the bank’s maneuvering space.
The Chinese government is struggling to shore up economic growth after a series of COVID lockdowns ground activity to a halt this year.
The yuan now faces the risk of falling below the psychologically important 7 to the dollar mark for the first time in over two years.
Headwinds from a stronger dollar have battered most Asian currencies this year. The South Korean won was trading at its weakest level in 13 years.
In the Asia-Pacific region, the New Zealand dollar traded flat after data showed the country's economy. rebounded more than expected in the second quarter, thanks to loosening COVID restrictions.
Australia's dollar rose 0.2% after data showed continued strength in the country’s job market, although unemployment also rose slightly.
