The dollar eased against the yen on Wednesday, with the outlook clouded by worries that escalating US–China trade tensions could exert a toll on the global economy and US growth.

The dollar fell 0.1 per cent to 106.50 yen, giving back some of the gains made on Tuesday, when it rose 0.6 per cent against the Japanese currency. The greenback gained on the yen the day before as risk appetite improved and Wall Street's main indexes advanced, helping the US currency stabilise after recent declines. Considered a safe haven currency, the yen attracts demand in times of economic uncertainty. On the flip side, it often weakens when investors' appetite for riskier assets improves.

The US S&P 500 gained nearly 1.3 per cent on Tuesday while Amazon.com shares jumped on bets that criticism from President Donald Trump would not translate to policy changes.

The outlook for the dollar, however, remains murky due to global trade tensions. The greenback has lost about 2.2 per cent against a basket of six major currencies so far this year.

The Trump administration on Tuesday raised the stakes in a growing trade showdown with China, announcing 25 per cent tariffs on some 1,300 industrial technology, transport and medical products to try to force changes in Beijing's intellectual property practices. China's commerce ministry said on Wednesday it “strongly condemns and firmly opposes” the proposed US tariffs following the Section 301 probe and will take counter measures.

The persistent worries over global trade tensions are likely to weigh on the dollar against the yen, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore. “The dollar will probably be weighed down, and a rise towards 108 yen seems unlikely,” Okagawa said.

At the same time, dollar-selling needs among Japanese players have abated now that Japan's end-March financial year-end is out of the way, and that could limit the dollar's downside risk, said Okagawa, who expects the dollar to trade in a 104 yen to 108 yen range in the near term.

Against a basket of six major currencies, the dollar last traded at 90.133, having edged back from Tuesday's near two-week high of 90.275. Analysts say investors are also focused on US payrolls data and comments by Federal Reserve Chairman Jerome Powell later this week, which should help determine the dollar's direction.

The euro edged up 0.1 per cent to $1.2274, regaining some footing after slipping 0.3 per cent on Tuesday. The common currency had retreated on Tuesday after a survey showed the euro zone's manufacturing boom faltered for a third month in March, although output remained robust.

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