* Dollar slips below 117.00 yen
* Euro given breathing space as dollar weakens against yen
* Wider yield spreads to support dollar vs euro longer term
(Adds details and quotes, updates prices)
By Shinichi Saoshiro
TOKYO, Dec 29 The dollar sagged against the yen
on Thursday, weighed down by U.S. yields slipping to two-week
lows and an ebb in risk appetite that favoured the safe-haven
The dollar was down 0.4 percent at 116.800 yen,
having come down from a high of 117.815 touched overnight.
Treasury yields fell in the wake of weaker-than-expected
U.S. pending home sales data and a robust debt auction.
The greenback also felt pressure from the safe-haven yen,
which provided a home for funds retreating from the region's
The euro was given breathing space as the dollar weakened
against its Japanese peer. The common currency was up 0.2
percent at $1.0437 after falling to as low as $1.0372 the
"The dollar looks like it has run its course against the yen
for now. But against the euro, the dollar still has room to gain
as the pair is now trying to catch up to the widening between
U.S. and German yields," said Masafumi Yamamoto, chief forex
strategist at Mizuho Securities in Tokyo.
The spread between the 10-year U.S. Treasury and
German bund yields is the widest on record
stretching back to 1990.
The spread has been increasing recently on the divergence
between European and U.S. central bank policy and outlooks for
growth and inflation.
The common currency already hit a near 14-year low of
$1.0352 last week and analysts expect it to eventually reach
parity with the dollar next year. The euro has fallen 3.8
percent this year.
The dollar index was down 0.2 percent at 103.080, but
still in reach of a 14-year high of 103.650 struck last week.
The index has gained 4.4 percent this year, the bulk of the rise
taking place after the U.S. elections early in November.
The index has climbed on expectations that Donald Trump's
incoming administration will boost U.S. growth through fiscal
stimulus, which could be accompanied by monetary tightening and
Against the yen, the dollar was en route for a loss of
nearly 3 percent in 2016, although it has rallied more than 10
percent since Trump's election victory.
"While the market collectively may not be focusing on the
story, dollar strength could become a domestic political issue
in 2017 should it persist," wrote strategists at BNY Mellon.
"Should the dollar make substantial gains from here,
particularly against the yen, it will be interesting to see how
president-elect Trump responds given his previous comment."
Trump earlier in the year had criticised Japan, along with
China and Mexico, saying Tokyo has deliberately lowered the
yen's value against the dollar.
Sterling was up 0.1 percent at $1.2239. The pound
was still in reach of a two-month low of $1.2201 set overnight
amid fresh uncertainty over Britain's Brexit negotiations.
The currency, dogged by Britain's mid-year decision to leave
the European Union, hit a three-decade trough below $1.1500 in
October and was on track to lose 17 percent in 2016.
The Australian dollar was up 0.25 percent at $0.7195
. The Aussie was headed for a decline of 1.2 percent on
the year against a broadly stronger dollar.
The New Zealand dollar fared a little better,
having risen 1.4 percent this year. While the kiwi lost steam
towards the year's end against the rampant dollar, it benefitted
from New Zealand's sound economic growth and relatively higher
(Reporting by Shinichi Saoshiro; Editing by Simon