The Australian and New Zealand dollars extended their losses against the yen to multi-week lows on Friday as traders bet on an imminent end to Japan's negative interest rates, while prospects of rate cuts at home supported bonds.
The Aussie fell 0.8% to 94.35 yen, after a tumble of 1.3% overnight to a nine-week low of 93.74 yen, as investors took comments from Bank of Japan Governor Kazuo Ueda as the clearest sign yet that the central bank could soon phase out its ultra-loose monetary policy, sending the yen sharply higher.
The broad strength in the yen kept a lid on the dollar, which has been on the defensive ahead of the closely watched U.S. nonfarm payrolls report due later on Friday.
With all of the action in yen, the Aussie was holding at $0.6606, having gained 0.8% overnight. It was set for a weekly loss of 1.1%, in part thanks to a dovish Reserve Bank of Australia that held rates steady on Tuesday.
The kiwi dollar was down 0.7% at 88.27 yen, having also plunged 1.7% overnight to a five-week trough of 87.7 yen. Against the greenback, it was steady at $0.6174, having risen 0.6% overnight.
The foreign exchange market reacted little to the changes to the policy structure of the Reserve Bank of Australia (RBA), which had been well flagged. The central bank will keep its flexible inflation target of 2% to 3% but aim to bring it to the mid-point of 2.5%.
Shane Oliver, chief economist at AMP, said even though some may argue policy could be tighter given the mention of 2.5%, the full employment objective in the statement means the RBA is unlikely to greatly change monetary policy.
"At the end of the day, I don't think it's going to result in big changes in monetary policy, but there are risks in this, particularly in terms of accountability for the Reserve Bank."
The new policy-setting board will have six outside members, which critics have argued ran the risk of undermining monetary policy.
Overall, markets remained unfazed about the changes. They largely consider the RBA finished with its tightening, with the chance for a rate hike in February at just 10%. The next move is forecast to be down, likely by August, with total easing next year of 27 basis points.
Australian three-year bond futures shot up 19 ticks this week to a two-month high of 96.02. Yields on 10-year bonds dived 18 basis points to 4.328%, the lowest in more than two months. (Reporting by Stella Qiu; Editing by William Mallard)