Forex - Dollar gives up gains vs. yen after BoJ

The dollar gave up gains against the yen on Tuesday after the Bank of Japan held off implementing fresh monetary easing measures, but sounded a more pessimistic tone on the outlook for the economy.

USD/JPY was last down 0.17% to 108.59, off session highs of 109.24.

The BoJ left monetary policy unchanged at the conclusion of its two day policy meeting on Tuesday, but acknowledged that a pullback in consumption is leading to weakness in production.

"Japan's economy has continued to recover moderately as a trend," the BoJ statement said, but it noted "some weakness, particularly on the production side" as domestic demand slumped after a sales tax hike in April.

Investors were looking ahead to Governor Haruhiko Kuroda's post policy meeting press conference, amid mounting speculation that the slowing economy will prompt the central bank to launch more stimulus measures.

The dollar rose to session highs against the yen earlier in the session, recovering from losses in the previous session, as investors locked in gains following Friday’s strong gains on the back of robust U.S. employment data.

The US Dollar Index, which tracks the performance of the greenback against a basket of six major currencies, was up 0.11% to 85.97, holding below Friday’s four year peaks of 86.79.

It notched up its twelfth consecutive weekly gain last week, the longest rally since the index was created in 1971.

Elsewhere, the yen was higher against the euro, with EUR/JPY down 0.33% to 137.20.

In the euro zone, data on Tuesday showed that industrial output in Germany dropped by a larger than forecast 4.0% from a month earlier in August, the largest decline since early 2009.

The weak data fuelled fears that the euro area economy is weakening.