By Rae Wee
SINGAPORE (Reuters) – The yen hit a 38-year low on Thursday and hovered around 160 per dollar, keeping markets on alert for any signs of intervention by Japanese authorities to support the currency.
In the broader market, the dollar pared some of its gains from the previous session as U.S. Treasury yields fell slightly, although they remained near eight-week highs against a basket of currencies.
The yen rose 0.2% to 160.47 per dollar after falling to a low of 160.88 on Wednesday, its weakest since 1986.
The Japanese currency is down about 2% on the month and 12% on the year against the resilient dollar as it continues to be impacted by the wide interest rate differential between the United States and Japan, which maintains the attractiveness of using the yen as a currency to finance transactions. carry trade.
In a carry trade, an investor borrows a low-interest currency and invests the proceeds in higher-yielding assets.
Still, the yen’s recent weakening above the key level of 160 per dollar has left investors concerned about possible intervention by Tokyo after authorities spent 9.79 trillion yen ($60.94 billion) in slow April and early May to push the yen higher. up 5% from the then 34-year low of 160.245.
Analysts said that while the risk of intervention has increased, Japanese authorities may wait for Friday’s release of the U.S. personal consumption expenditures (PCE) price index before entering the market. Still, any intervention is likely to have constrained impact, they said.
“I don’t think there’s much the Japanese authorities can do and the market has shown that,” Dong Chen, chief Asia strategist and head of Asia research at Pictet Wealth Management, said at an outlook event on Thursday.
“Despite all their verbal and actual interventions, they have failed to stop the yen from falling,” Chen said, pointing to the wide interest rate differential. “We still expect the yen to weaken.”
DOLLAR POWER
Sterling retreated from a more than one-month low of $1.2616 in the previous session to rise 0.19% to $1.2645, while the euro gained 0.14% to $1.0694.
However, the single currency was on track to weaken by around 1.4% on the month, weighed down by political turmoil in the euro zone in the run-up to early French elections due this weekend.
The stock fell 0.13% to 105.91, not far from a nearly two-month high of 106.13 it hit on Wednesday.
“Political turmoil in Europe and the higher-for-longer narrative in the U.S. have made the dollar more attractive,” said Boris Kovacevic, global macro strategist at Convera.
“For the currency to start losing some of its past gains, we would need to see the global disinflationary trend continue and politics take a backseat.”
The Swedish krona weakened after the central bank kept its key interest rate at 3.75% on Thursday, in line with expectations, and said that if the inflation outlook remains the same, the key interest rate could be cut two or three times in the second half of the year.
The dollar was last up 0.2% at 10.60 crowns.
Elsewhere, the Australian dollar rose 0.3% to $0.6668, drawing some support from Wednesday’s positive domestic inflation surprise, which prompted markets to raise the prospects for another rate hike by the Reserve Bank of Australia this year.
The New Zealand dollar rose 0.18% to $0.6094.
Currency moves outside the yen have been largely subdued for most of the week as investors await Friday’s U.S. headline PCE data, the Federal Reserve’s preferred measure of inflation, for further guidance on the U.S. interest rate outlook.
Wednesday was the last day investors could trade currencies for the quarter, given that spot settlement of currency exchanges takes two business days.
Last month, however, trading in U.S. stocks moved to a shorter trading cycle, known as T+1.
($1 = 160.6500 yen)
