© Reuters. FILE PHOTO: Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration, January 21, 2016. REUTERS/Jason Lee/Illustration/File Photo

By Ritvik Carvalho and Saikat Chatterjee

LONDON (Reuters) – The Japanese yen weakened on Friday as a downward spiral in U.S. Treasury yields ran out of steam and risk appetite began to recover, but the currency was still on track for its biggest weekly gain since November.

Bonds have rallied this week with 10-year U.S. Treasury yields falling as much as 20 bps to a February low while stocks took a hammering worldwide amid growing concerns the fast-spreading Delta variant of COVID-19 could derail a revival that is already showing pockets of weakness.

While the perceived safe-haven currencies including the yen and the franc weakened by 0.3% against the dollar in early London trading, the yen was on track to strengthen 0.9% this week, its biggest weekly rise since early November.

“Yesterday’s decline in dollar-yen is reversing together with risk appetite in equities suggesting no wider spillover effects across markets for now – the same move is seen in the U.S. 10-year yield bouncing back above 1.3%,” said Steen Jakobsen, chief investment officer at Saxo Bank.

“This week’s price action suggests a technical risk-off with a bigger repositioning of reflation trades.”

The People’s Bank of China (PBOC) said on its website it would cut the reserve requirement ratio (RRR) for all banks by 50 basis points (bps), effective from July 15.

China’s yuan was broadly steady after the announcement, although it appeared to accelerate the recovery in risk appetite, with the Australian and New Zealand dollar ticking gradually higher following the news.

The gained nearly half a percent on the day to $0.7462 after earlier touching a fresh low for the year at $0.7410. On Thursday, it posted a 0.7% decline.

New Zealand’s also gained 0.4% to $0.6968. It plunged more than 1% in the previous session.

The euro extended gains on top of a 0.45% jump on Thursday, adding more than 0.1% to $1.1861.

The slid back almost 0.1% to 92.284.

Mark Dowding, chief investment officer at BlueBay Asset Management, noted that there appears to be an ongoing “cleansing” of consensus positioning, given the firmness of the dollar.

“It appears that the consensus has tended to hold bets with respect to higher rates, steeper curves and a weaker dollar over the past few months, with many investors being caught on the wrong side of recent moves,” he said.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits rose unexpectedly last week, an indication that the labour market recovery from the COVID-19 pandemic continues to be choppy.

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