The yen pulled ahead and the yuan fell against the dollar on Tuesday as the spread of a pneumonia-like virus in China sparked a sudden bout of risk aversion and sent Asian stocks skidding.
The yuan slipped against U.S. currency in onshore and offshore trade after a Chinese health expert said the virus can pass from person to person as the fourth death from the illness was confirmed.
The outbreak of the disease, which has spread from the central city of Wuhan, is still in its early stages. However, it comes right before the peak travel season during the Lunar New Year holidays, raising the risk that it could spread further.
"There was a sharp fall in Hong Kong stock futures that rippled through the currency market and pushed up the yen," said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.
"I can understand why some people would say the Chinese virus is the trigger, but it is still too early to be certain."
The yen edged higher 0.15% to 110.01 per dollar on Tuesday.
In the onshore market, the yuan fell to 6.8916 per dollar, the lowest level in almost a week. In the offshore market, it dropped to 6.8886.
The dollar index against a basket of six major currencies stood at 97.598, near the highest level in a month.
Traders in Japan were also focused on a Bank of Japan meeting.
At the two-day rate review that ends on Tuesday, the BOJ is set to keep its short-term interest rate target at minus 0.1% and a pledge to guide 10-year government bond yields around zero.
The BOJ is also expected to nudge up its growth forecasts as improved macroeconomic indicators take some pressure off the central bank for more stimulus, but traders will scrutinise governor Haruhiko Kuroda's remarks after the policy decision.
Elsewhere in currencies, the Australian dollar fell 0.18% to $0.6862 as worries about the Chinese virus hurt currencies sensitive to risk. The New Zealand dollar also eased 0.11% to $0.6604.
The euro was locked in a narrow range before a European Central Bank (ECB) meeting on Thursday where it is expected to launch a comprehensive review of central bank strategy, including the ECB's inflation target.
Against the dollar, the euro traded at $1.1096. The common currency was also quoted at 85.34 pence.
The ECB's first meeting of the year is most likely to launch a rethink of an inflation goal the bank has failed to meet since 2013.
The scope and scale of the review will be a key focus for markets given the far-reaching implications for monetary policy.
A slightly brighter tone to data means the ECB's assessment of the economic outlook will also be watched closely by investors on Thursday.
(Reporting by Stanley White; Editing by Shri Navaratnam)
