By Hiroyuki Kachi 
 

The dollar strengthened against the yen in Asian trade Friday, with lower oil prices among the factors accelerating the selling of the Japanese currency.

As of 0450 GMT, the dollar was at Y118.29 from Y117.74 late Thursday in New York, amid thin trading due to the U.S. Thanksgiving holiday.

Following a decision by the Organization of the Petroleum Exporting Countries to keep intact its established production targets despite the recent sharp falls in crude prices, Nymex West Texas Intermediate crude tumbled below $70 a barrel for the first time in four years.

The OPEC decision gave an upward bias to the greenback that spread to trading in Asia.

"Oil price weakness is a direct boon to the U.S. economy," said Shinji Kureda, head of FX trading group at Sumitomo Mitsui Banking Corp.

The resulting improved sentiment about the U.S. recovery was reflected in Tokyo share prices, which gained traction from the opening bell. The Nikkei Stock Average was up 1.2% midway through the afternoon session.

Traders also cited buying by Japanese importers related to commercial transaction settlements ahead of the regular book closing at the end of the month.

"There are investors who have no choice but to buy (the dollar), even though they don't really want to," at this level, said Yuzo Sakai, manager of FX business promotion at Tokyo Forex & Ueda Harlow.

Some traders and analysts also noted the latest fall in Japan's inflation rate.

Japan's annual rate of inflation moved further away from the 2% level targeted by Prime Minister Shinzo Abe and the Bank of Japan in October. Growth in the core consumer price index fell last month to 0.9%, providing more bad news for the central bank. The inflation figure strips out volatile fresh food prices and is adjusted for a sales tax increase in April.

"That maintains expectations for additional monetary easing by the Bank of Japan, though nothing immediate is expected," said Yuji Saito, executive director of foreign exchange department of Credit Agricole.

A fall in Japan's two-year government bond yield into negative territory for the first time ever, provided another catalyst for the dollar's strength against the yen. Expectations for a widening gap between U.S. and Japanese interest rates has been one of the drivers of the yen's decline against the greenback.

"I think the negative yield on the two-year note can be cited as one reason behind the yen weakness," said Akito Fukunaga director of bond research at Barclays in Tokyo.

With the dollar gaining momentum again, verbal intervention by Japan's currency authorities is likely if the greenback comes closer to the Y120 threshold, said Credit Agricole's Mr. Saito, who expects the dollar will likely move in a Y117.00-Y119.50 range during next week.

In other currency trading, the euro was at $1.2447 from $1.2466, while the euro was at Y147.26 from Y146.74.

The WSJ Dollar Index, a measure of the dollar against a basket of major currencies, was up 0.29% at 80.72.

 
 
Interbank Foreign Exchange Rates At 00:50 EST / 0450 GMT 
 
                         Latest         Previous   %Chg   Daily     Daily   %Chg 
                                        2150 GMT           High     Low    12/31 
Dollar Rates 
USD/JPY Japan           118.29-30      117.69-75  +0.49   118.33   117.72 +12.33 
EUR/USD Euro            1.2447-50      1.2465-69  -0.15   1.2467   1.2446  -9.43 
GBP/USD U.K.            1.5707-10      1.5733-41  -0.18   1.5740   1.5706  -5.13 
USD/CHF Switzerland     0.9654-58      0.9638-44  +0.15   0.9658   0.9642  +8.13 
USD/CAD Canada          1.1348-54      1.1329-38  +0.15   1.1353   1.1330  +6.86 
AUD/USD Australia       0.8492-94      0.8543-47  -0.61   0.8547   0.8490  -4.73 
NZD/USD New Zealand     0.7830-32      0.7864-69  -0.45   0.7874   0.7828  -4.75 
 
Euro Rate 
EUR/JPY Japan           147.24-26      146.72-81  +0.33   147.31   146.76  +1.74 
Source: ICAP PLC 
 

Write to Hiroyuki Kachi at Hiroyuki.Kachi@wsj.com