The Japanese yen was bolstered by news that the Chinese government has decided to raise its interest rates and allow for greater flexibility for its currency to appreciate. Fears that the Chinese economy may slow down more than expected due to higher rates and a stronger currency has increased some risk aversion and seen investors unwind some carry trades -- when funds are borrowed in low-interest rate countries, like Japan, and invested in higher-yielding economies. Besides raising interest rates, the Chinese central bank also widened the trading band for its currency, the yuan, allowing it more space to appreciate against the dollar and other major currencies. Analysts noted that the market had already been expecting some similar action, but that the news is confirmation that the Chinese central bank is willing to take small steps towards greater foreign exchange flexibility. "The move itself may mark little more than a token gesture from the (central bank) and signal that they do intend on moving to a free-yuan down the line," said Matthew Foster-Smith at Thomson's IFR Markets. The yen gained against the dollar, pushing it down to 120.80 yen from 121.30 yen before the news, and it pushed the euro down to 162.70 yen from 163.80 yen.