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 keep raising interest rates to boost the currency.
The dollar and euro were largely stable as traders took a breather in a week of weak economic data, while the Australian and New Zealand dollars suffered from a surprise interest rate cut in China.
The dollar was last down 0.65% against the Japanese yen at 155.98, not far from Thursday’s five-week low of 155.375.
Senior ruling party official Toshimitsu Motegi said last night that the Bank of Japan should more clearly signal its intention to normalize monetary policy, including through steady interest rate hikes. The BOJ then sets rates on July 31.
“The yen received support overnight from further comments from Japanese politicians,” said Lee Hardman, currency analyst at Japanese bank MUFG, who added that his comments indicated a “growing unease” among politicians about the policies of the BOJ.
“It closely follows last week’s calls from Digital Transformation Minister Kono Taro, who called on the BOJ to raise interest rates to provide more support to the yen.”
The yen has found some support thanks to Tokyo’s recent interventions to support the currency and as traders awaited the BOJ’s decision. However, most economists polled by Reuters expect the BOJ to leave rates unchanged at the meeting.
The , which tracks the US currency against six peers, was little changed at 104.33, after falling to a four-month low of 103.64 last week.
The euro fell 0.15% to $1.0874. Sterling fell 0.12% to $1.2915.
Trading was relatively subdued in a week of scant economic data until the release of US personal consumption expenditure (PCE) inflation figures for June on Friday.
The market reaction to US President Joe Biden’s decision to drop out of the election race was muted, although there was some relaxation in the so-called Trump trade, causing dollar and US government bond yields to fall slightly.
The Australian and New Zealand dollars struggled to regain their footing on Tuesday following China’s decision to cut several key interest rates.
China surprised the markets on Monday by sharply lowering short- and long-term interest rates. It was the first such broad move since last August, signaling an intention to boost growth in the world’s second-largest economy.
The two Antipodean currencies, often used as liquid proxies for the , extended losses after collapsing 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 weakest level since early May at $0.5962.
“For the and the , they tend to reflect a more liquid and free expression in terms of the realities the Chinese economy is currently facing,” says Rodrigo Catril, senior FX strategist at National Australia Bank (OTC:).
