Yen weakens as BOJ flags easing risks, euro trims earlier gains

The dollar inched up against the yen on Tuesday after Japan's central bank governor raised the possibility of further policy easing, while the euro's latest bounce faded as the focus shifted back to economic challenges in the bloc.

The greenback rose to 110.615 yen from a low of 110.45 hit earlier in the session.

Bank of Japan Governor Haruhiko Kuroda, speaking at the Japanese parliament, said the central bank was ready to ramp up stimulus if sharp yen rises hurt the economy and derail the path towards achieving its 2 percent inflation target.

The dollar index versus a basket of six major currencies was nearly flat at 96.914 after ending the previous session unchanged. U.S. financial markets were closed on Monday for the Presidents' Day holiday.

The euro was down 0.15 percent at $1.1297. It edged up 0.16 percent overnight, pulling away from a three-month low of $1.1234.

The single currency had been buoyed by improved investor sentiment as expectations increased for an easing of the U.S.-China trade conflict after both sides reported progress in talks.

The dollar, the world's most liquid currency, has tended to perform well during bouts of investor nervousness.

"The euro's latest bounce was not based a positive incentive specific to the currency and the market will likely return to pricing in the potential negatives. The euro will remain on a shaky footing," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

"There is still some way to go before potential negatives are factored into the euro ahead of the March 7 ECB meeting."

ECB policymakers will next meet on March 7, when the bank's staff are expected to slash growth and inflation projections as the euro zone suffers its biggest slowdown in half a decade.

Euro zone bond yields, notably those of German bunds, have declined amid the cloudy European economic outlook and weighed on the common currency.

The Federal Reserve's recent shift to a dovish tilt was expected to affect ECB monetary policy.

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