Samuel Indyk and Gertrude Chavez-Dreyfus
LONDON/NEW YORK (Reuters) – The yen fell against the U.S. dollar on Wednesday to its weakest level since mid-1990, with markets warning of any sign of intervention by Japanese authorities to support their currency.
As the yen fell, the dollar rose, recovering against most currencies after falling following Tuesday’s data showing U.S. business activity has slowed this month.
The dollar rose to 155.17 yen, its highest level since mid-1990, before falling again in choppy trading, a sign of market nervousness around the 155 level. It was last at 155.08, up about 0.2 %.
The yen’s weakness against the dollar increased market concerns about foreign exchange intervention. Japanese Finance Minister Shunichi Suzuki and other policymakers said they were closely monitoring the currency’s movements and would respond as needed.
However, senior ruling party official Takao Ochi told Reuters that a depreciation of the currency to 160 could trigger intervention. Ochi said that if the yen fell to 160 or 170 to the dollar, “it could be considered excessive and could prompt policymakers to consider some action.”
However, market participants reacted with suspicion to Japan’s comments regarding the yen.
“The market still thinks the BOJ has that line in the sand. It should have been 152, then it was 155. But since the Bank of Japan (BOJ) is not showing up now, it is now 160,” said Mark Chandler, chief market strategist at Bannockburn Global Forex in New York.
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“Overall, it should be noted that the yen intervention in September and October 2022 was successful because Japan was able to reach the top of Treasury yields. This time, the Bank of Japan is not so confident about the upcoming non-farm payrolls report next Friday and the next CPI (consumer price index) figure,” he added.
The Bank of Japan is expected to keep policy parameters and bond purchase amounts unchanged at the end of its two-day meeting on Friday, having raised interest rates for the first time since 2007 just last month.
Bank of Japan Governor Kazuo Ueda said the central bank could raise interest rates again if the yen’s fall significantly boosts inflation.
The yen’s fall came after a string of strong U.S. inflation data pushed the dollar to five-month highs and bolstered expectations that the Federal Reserve is unlikely to rush to cut interest rates this year.
The index, which measures a currency’s value against six major peers including the euro, pound sterling and yen, was last up 0.1% at 105.82. The index had earlier hit 105.59, a roughly two-week low, which fell the day before on unexpectedly robust economic activity data in Europe and slowing business growth in the United States.
The U.S. dollar pared gains slightly after data showed new orders for key capital goods made in the U.S. rose modestly in March and data for the previous month was revised down, suggesting business spending on equipment. likely remained weak in the first quarter.
The euro was little changed at $1.0698 after rallying Tuesday after data showed eurozone business activity grew at its fastest pace in nearly a year, led by a recovery in the services sector.
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Sterling was also unchanged at $1.2445, consolidating Tuesday’s gains on data showing British business recorded its fastest growth in activity in almost a year and following comments from Bank of England chief economist Hugh Pill who said interest rate cuts were still a long way off .
The Fed’s consumer inflation target, the PCE deflator, will be published on Friday. Markets currently rate the likelihood of a first U.S. rate cut by September at 67%, according to FedWatch CME tool.
The index edged up slightly to US$0.6491 after rising to US$0.6530 for the first time since April 12 as it rose on hotter-than-expected consumer price data. This has caused markets to abandon hopes of any rate cuts by the Reserve Bank of Australia in the near future.