* Dollar firmer vs yen, nears 4-month high set last week
* Treasury’s Mnuchin says trade war “on hold”
* Trade war truce seen as positive for risk sentiment
* Euro remains on defensive, sets fresh 5-month low
By Masayuki Kitano
SINGAPORE, May 21 (Reuters) - The dollar edged up against the yen on Monday, after U.S. Treasury Secretary Steven Mnuchin said the U.S. trade war with China is “on hold”, boosting risk sentiment amid hopes for an easing of trade tensions between the world’s two biggest economies.
The dollar rose 0.2 percent to 110.99 yen in early Asian trade, nearing a four-month high of 111.085 yen that had been set on Friday.
The easing of U.S.-China trade tensions is likely to underpin riskier assets such as equities and bodes well for the dollar against the safe-haven yen, said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.
“I think equity markets are going to be in a happier place today,” Innes said.
Japan is the world’s largest creditor nation and traders tend to assume Japanese investors would repatriate funds at times of crisis, thus pushing up the yen. The Japanese currency often weakens when investor confidence increases and their appetite for riskier assets strengthens.
If U.S. 10-year Treasury yields were to climb above the seven-year high of 3.128 percent set on Friday and the dollar gains a solid foothold above 111 yen, the greenback could attempt for the 112-yen levels, Oanda’s Innes added.
In equity markets, U.S. S&P mini futures rose 0.6 percent in early Asian trade, as Mnuchin said on Sunday that the U.S. trade war with China is “on hold” after the world’s largest economies agreed to drop their tariff threats while they work on a wider trade agreement.
Mnuchin and U.S. President Donald Trump’s top economic adviser, Larry Kudlow, said the agreement reached by Chinese and American negotiators on Saturday sets up a framework for addressing trade imbalances in the future.
The dollar’s index against a basket of six major currencies set a fresh five-month high on Monday, touching a peak of 93.860 at one point.
The euro slipped to $1.1744 at one point, touching its lowest level in five months, and was last down 0.2 percent on the day at $1.1747.
Europe’s single currency has dropped around seven cents in about a month amid a sharp dollar rally.
Concerns have also mounted about the agreement between Italy’s far-right League and 5-Star Movement on a governing accord that would slash taxes and ramp up welfare spending.
A focus for markets this week is Wednesday’s release of minutes from the Federal Reserve’s latest monetary policy meeting. Investors will be watching the minutes for clues about the pace of the current tightening cycle. (Reporting by Masayuki Kitano Editing by Shri Navaratnam)