By Harry Robertson and Rae Wee
LONDON/SINGAPORE (Reuters) – The yen rose on Tuesday as investors reacted to comments from a senior Japanese politician that increased pressure on the Bank of Japan to continue raising interest rates to shore up the currency.
Meanwhile, the dollar rose slightly as investors awaited inflation data later in the week, while the Australian and New Zealand dollars fell after a surprise interest rate cut in China.
The dollar was last down 0.55% against the Japanese yen at 156.13, after falling to a five-week low of 155.375 on Thursday.
Senior ruling party official Toshimitsu Motegi said overnight that the BOJ should make clearer its determination to normalize monetary policy, including through sustained interest rate hikes. The BOJ will set interest rates on July 31.
“The yen gained support on further comments from Japanese politicians overnight,” said Lee Hardman, a currency analyst at Japanese bank MUFG, who added that his comments showed “growing concern” from politicians about the Bank of Japan’s policy.
“This follows calls last week by Digital Transformation Minister Kono Taro, who urged the Bank of Japan to raise interest rates to provide more support for the yen.”
The yen found some support from Tokyo’s recent interventions to prop up the currency, with traders watching the BOJ’s decision. But most economists polled by Reuters expect the BOJ to keep rates on hold at the meeting.
The index, which tracks the U.S. currency against six other currencies, rose slightly to 104.36, after falling to a four-month low of 103.64 last week.
The euro fell 0.22% to $1.0868. The pound weakened 0.15% to $1.2911.
Trading volume was relatively lithe in a week without any economic data until Friday when US consumer expenditure (PCE) inflation data for June was released.
The market reaction to U.S. President Joe Biden’s decision to withdraw from the election race was muted, although there was some weakening in the so-called Trump trade, which caused the dollar and U.S. Treasury yields to fall slightly.
The Australian and New Zealand dollars struggled to regain their footing on Tuesday after China cut several key interest rates.
China surprised markets on Monday by cutting key short-term and long-term interest rates, the first broad move since August last year, signaling a move to boost growth in the world’s second-largest economy.
The two antipodean currencies, often used as liquid substitutes, posted further declines after falling in the previous session on the news.
The Australian dollar fell to a three-week low of $0.6622, while the New Zealand dollar hit its lowest level since early May of $0.5962.
“In terms of markets and markets, they seem to reflect a more fluid and freer expression of the realities that the Chinese economy is currently facing,” said Rodrigo Catril, senior currency strategist at National Australia Bank (OTC:).
