The yen, already at two-decade lows by one measure, looks set to remain under pressure this year as subdued inflation dampens prospects of further rises in Japanese interest rates, analysts said.
The yen has hit record lows against the euro in recent weeks on expectations that the pace of monetary tightening will be faster in the 12-nation eurozone than in Japan, which is recovering from a decade in the deflation dumps.
Japan's effective exchange rate is at the weakest level for 21 years in real terms, according to central bank figures, a boon to Japanese exporters.
The yen has fallen by about seven percent against the euro this year and has also dropped recently against the Australian and New Zealand dollars, while faring better against the US dollar.
The Japanese unit is expected to stay weak this year as investors borrow cheap funds in Japan to invest in higher-yielding currencies or assets in a practice known as the "carry trade," analysts said.
"Although the Japanese economy is steady, the latest tame consumer price data reduced expectations of further interest rate rises in Japan," said Takeshi Makita, senior economist at the Japan Research Institute.
"The trend of a weaker yen will continue as hedge funds and foreign banks seem to be chasing the currency for yen carry trade on the basis that interest rate differentials will remain large," he said.
The end to the Bank of Japan's deflation-busting monetary policy in March, followed by its first interest rate rise -- from near zero to just 0.25 percent -- in almost six years in July, had prompted talk the yen carry trade was over as lending costs here would rise.
But with many analysts now scaling back their forecasts for the next hike in Japan's interest rates, speculators are returning to drink from Japan's fountain of still easy credit.
"As Japan's interest rates will remain the lowest among the major economies for at least one and a half more years, the trend of investors raising funds in Japan will not change," said Yujiro Goto, economist at Nomura Securities Financial and Economic Research Center.
"But Japan's solid economic growth and expected interest rate rises, even at a slow pace, will prevent the yen from falling much further, although it is not likely to get much stronger either," he added.
Japan's core consumer price index (CPI) rose by just 0.2 percent in July and figures for previous months have been revised down, indicating inflation remains more subdued than had been thought.
The Bank of Japan (BoJ), which announces its latest interest rate decision today, is now expected to hold fire until late this year or sometime next year.
"It is difficult to forecast the timing [of the next rate hike] after the weaker CPI," said Seiji Katsurahata, senior economist at Dai-Ichi Life Research Institute, noting BoJ governor Toshihiko Fukui may give fresh clues today.
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