By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The yen fell against the U.S. dollar to its weakest since mid-1990 above the key area on Wednesday, with markets on alert for signs of intervention by Japanese authorities to support their currency.
While the yen fell, the dollar rose, recovering against most currencies from the decline caused by Tuesday’s data showing U.S. business activity slowing this month.
The dollar rose to 155.37 yen, the strongest since mid-1990, before falling back into choppy trading, signaling market nervousness around the 155 level. The last reading was 155.26, an increase of about 0.3%.
The yen’s weakness against the dollar has fueled market concerns about currency intervention. Japanese Finance Minister Shunichi Suzuki and other policymakers have said they are closely monitoring currency movements and will respond if necessary.
Senior ruling party official Takao Ochi told Reuters that a drop in the currency towards 160 could lead to intervention. Ochi said if the yen falls further toward 160 or 170 per dollar, “it could be considered excessive and could prompt policymakers to consider some action.”
However, market participants have taken Japan’s comments on the yen with a grain of salt.
“The dollar/yen move is in line with what is happening with the broad revaluation of the dollar,” said Jayati Bharadwaj, global currency strategist at TD Securities in New York. “It is not driven by speculation by the BOJ (Bank of Japan), as was the case at one point last year, but by a broad move in the dollar, supported by fundamentals.”
Remove ads
.
She added that if the BOJ were to intervene on behalf of the Treasury Department, it would not target a “round number.”
“I don’t think there is a specific number that the BOJ has in mind. It should be the size of the step,” she added.
The BOJ will begin its two-day policy meeting on Thursday and is widely expected to leave policy settings and bond purchase amounts unchanged after raising rates last month for the first time since 2007.
BOJ Governor Kazuo Ueda has said the central bank could raise rates again if the yen’s decline significantly boosts inflation.
The yen’s decline comes after a string of strong U.S. inflation data pushed the dollar to a five-month high and boosted expectations that the Federal Reserve is unlikely to rush to cut rates this year.
The , which measures the currency’s value against six major peers led by the euro, was last up 0.2% at 105.84. Earlier, the index hit 105.59, its lowest in about two weeks, after Tuesday’s surprisingly robust European activity data and cooling U.S. business growth.
The dollar fell on Wednesday after data showed new orders for key US-made capital goods rose moderately in March and data for the previous month was revised down. The report suggested that corporate spending on equipment was likely to remain weak in the first quarter.
The euro was little changed at $1.0697 after Tuesday’s rally on data showing euro zone business activity grew at the fastest pace in almost a year.
Remove ads
.
Sterling, meanwhile, rose 0.1% to $1.2460, continuing gains from Tuesday on data showing British companies posting the fastest growth in activity in almost a year. The pound was also boosted on Tuesday by comments from Huw Pill, chief economist at the Bank of England, who said interest rate cuts were still some way off.
The Fed’s favorite inflation measure, the personal consumption expenditures (PCE) price index, will be released on Friday. According to the CME’s FedWatch tool, markets are currently pricing in a 70% chance of a first US rate cut in September.
In other currencies, the Australian dollar rose 0.1% to US$0.6497 after hitting a high of US$0.6530 for the first time since April 12 after recovering on better-than-expected consumer price data. That prompted markets to abandon hopes of short-term rate cuts from the Reserve Bank of Australia.
