(Updates prices at 0615 GMT)
The yen hit a one-month high against the dollar on Thursday on growing speculation that the Bank of Japan could end negative interest rates this month, while bets that U.S. rate cuts could come by mid-year weighed on the greenback.
The Japanese currency JPY=EBS rallied more than 0.5% to a high of 148.40 per dollar, and made gains against the euro EURJPY=EBS and sterling GBPJPY=EBS .
The euro was last 0.53% lower at 161.99 yen, while the British pound fell 0.43% to 189.23 yen.
BOJ board member Junko Nakagawa said on Thursday Japan's economy was moving steadily towards sustainably achieving the central bank's 2% inflation target.
Her comments come one day after Jiji news agency reported that at least one of the central bank's nine board members is likely to say that removing negative interest rates would be reasonable at this month's policy meeting.
"The potential for (a) March pivot is growing," said Hirofumi Suzuki, chief FX strategist at SMBC.
"Nakagawa's comments do not negate this view. As a result, the yen is appreciating, continuing the trend from yesterday. The yen looks strong in the near term."
The yen has weakened for the most part of the past two years owing to stark interest rate differentials. Major central banks aggressively hiked interest rates to tame inflation, while the BOJ remained a lone outlier with its ultra-easy monetary policy stance.
A move by the BOJ away from negative interest rates would come at a time where bets for rate cuts elsewhere - particularly from the Federal Reserve - continue to build, which would give some much needed support to the battered Japanese currency.
In the broader market, the U.S. dollar was on the back foot, as traders zeroed in on the idea that U.S. interest rates were likely to fall this year even after some upside surprises on inflation.
Fed Chair Jerome Powell said on Wednesday rate cuts will "likely be appropriate" later this year "if the economy evolves broadly as expected" and once officials gain more confidence in inflation's steady deceleration.
Those remarks, coupled with data released the same day that pointed to an easing of labour market conditions, sent U.S. Treasury yields skidding, which in turn pushed the greenback broadly lower.
The euro EUR=EBS and sterling GBP=D3 held near one-month highs struck in the previous session and last bought $1.0900 and $1.27395 respectively.
Carol Kong, a currency strategist at Commonwealth Bank of Australia, said Powell's comments were less hawkish than some had expected.
"Markets were likely relieved that Powell didn't change his risk assessment on inflation even after the January CPI figures," she said.
Futures pricing currently point to a roughly 70% chance that the Fed could begin easing rates by its June policy meeting, according to the CME FedWatch tool, with about 87 basis points worth of cuts priced in for the year. FEDWATCH
All of that left the greenback pinned near a one-month low against a basket of currencies. The dollar index =USD edged 0.07% lower to 103.26.
Elsewhere, the Australian dollar AUD=D3 rose to a two-week high of $0.65885, while the New Zealand dollar NZD=D3 similarly hit a one-week top of $0.6149.
Data on Thursday showed Australia's surplus on trade goods widened in January as a rise in exports of farm products and gold outweighed growth in vehicle imports.
The yuan was little changed and last stood at 7.1985 per dollar in the onshore market CNY=CFXS , brushing off China's stronger-than-expected export and import growth in the January-February period.
Ben Bennett, Asia-Pacific investment strategist at Legal & General Investment Management, said the muted market reaction was likely due to investors waiting for more policy details from China's annual parliament session.
"Plus, economic data during the Lunar New Year period is hard to analyse given the activity interruptions."
Over in the cryptoverse, bitcoin BTC= retreated from a record high struck earlier in the week, though its 0.5% loss on the day paled in comparison to its 55% rally for the year thus far.
The world's most popular cryptocurrency was last at $66,155, while ether ETH= slipped nearly 2% to $3,777.20 after peaking at an over two-year high in the previous session.
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