TOKYO, July 5 (Reuters) The yen trimmed losses on Wednesday after falling against the dollar and hitting a record low versus the euro on reports that North Korea had test-fired missiles.
With only limited information available on the launches, dealers turned cautious after initially dumping the yen on news that Pyongyang had fired at least six missiles despite repeated warnings from North Korea's neighbours and from Washington.
''It's a political issue and it's hard to see what will happen next,'' said one trader at a major Japanese bank. ''So, market participants decided to wait for further developments and book some profits on the dollar.'' At Japan's request, the U.N. Security Council is due to meet on Wednesday to discuss the firing of the missiles, which included a long-range Taepodong-2 that apparently failed soon after it was launched.
By 0340 GMT, the dollar was at 114.90 yen after rising as high as 115.24 yen on trading platform EBS.
It had bought 114.55 yen in late London trading on Tuesday, when U.S. markets were closed for the Independence Day holiday.
The euro was at 146.95 yen, up from around 146.65 yen in late European trade. It climbed as high as 147.29 yen on EBS, the highest since the single currency was launched in 1999.
The euro was little changed at $1.2790.
A wave of safe-haven buying pushed the Swiss franc to a fresh eight-year high against the yen while gold rose by more than 1 per cent to its highest level in a month.
Analysts said growing expectations that the Bank of Japan will raise overnight interest rates from zero next week helped to limit the yen's fall. Such a move by the central bank would be the first in six years.
Kyodo news agency reported that the BOJ plans to raise the overnight call rate to 0.25 percent at its July 13-14 Policy Board meeting.
''The market has not yet fully priced in a 25-basis-point rate increase by the BOJ,'' said Masafumi Yamamoto, currency strategist at Nikko Citigroup.
''If the central bank really raises the overnight rate by that much, it should prompt some yen buying.'' ECB VERSUS FED As the initial Asian market reaction to the missile launches faded, focus shifted to the European Central Bank's policy meeting on Thursday, traders said.
The ECB is seen leaving interest rates on hold after it boosted rates by 25 basis points to 2.75 percent last month, but more people in the market are betting on a rate rise in August.
Data on Tuesday showed that euro zone producer prices in May rose 6.0 percent from a year earlier, the steepest increase in nearly 6 years and reinforcing expectations for further rate hikes.
Expectations for more tightening had pushed the euro to one-month highs against the dollar this week, while the Federal Reserve last week delivered a 17th straight rate increase but signalled it may pause its two-year tightening campaign.
Traders said that investors would continue to scrutinise U.S.
data for clues about whether the Fed had in fact reached the end of its cycle of credit tightening.
Shining brightly on the market's radar is the June payrolls report due on Friday.
Before that, figures for factory orders in May are due at 1400 GMT and are expected to show a 0.1 percent rise following a 1.8 per cent fall in April.
REUTERS SBA VV1154