The yen remained near a 38-year low on Thursday and held below 160 to the dollar, keeping markets on alert for any signs of intervention by Japanese authorities to support the currency .
Across the market, the dollar led and held at an eight-week high against a basket of currencies, helped in part by a weaker yen and a rise in line with yields of the US Treasury.
The yen edged up 0.1% to 160.63 per dollar at the start of the Asian session, while remaining a fraction of Wednesday’s low of 160.88, its weakest since 1986.
The Japanese currency fell some 2% for the month and 12% for the year against a resilient greenback, as it continues to be penalized by wide interest rate differentials between the United States and Japan, which maintained the appeal of using the yen as a financing currency for carry trades.
In a carry transaction, an investor borrows in a low-interest currency and invests the proceeds in higher-yielding assets.
Still, the yen’s latest fall beyond the key level of 160 per dollar has made traders nervous about possible intervention from Tokyo, after authorities spent 9.79 trillion yen ($60.94 billion ) at the end of April and the beginning of May to raise the yen by 5% from its lowest level in 34 years, namely 160.245 at the time.
Analysts say although the risk of intervention has increased, Japanese authorities may wait until Friday’s release of the U.S. personal consumption expenditures (PCE) price index before intervening in the market.
“The level of the exchange rate and the pace of depreciation are important for the finance ministry to consider intervening in foreign exchange markets,” said Boris Kovacevic, global macroeconomic strategist at Convera.
“However, the low volatility of the options markets suggests that the recent rise has not met all the criteria sought by the Ministry of Finance.
“Policymakers may wait for Friday’s PCE report which is expected to show continued disinflation in the US before making a final decision before the weekend.”
FORCE YOU DOLLAR
Sterling struggled to break free from a one-month low of $1.2616 hit in the previous session and last bought $1.2622, succumbing to a stronger dollar.
The euro, which fell to its lowest level since early May on Wednesday, was up 0.01% at $1.0680.
The common currency was on track to lose around 1.5% for the month, weighed down by political turmoil in the euro zone ahead of snap elections in France due to start this weekend.
The dollar index remained near a two-month high and settled at 106.05, supported by high U.S. Treasury yields.
The benchmark 10-year yield rose two basis points to 4.3392% on Thursday, while the two-year yield settled at 4.7576%.
“I think it’s a combination of factors,” Ray Attrill, head of foreign exchange strategy at National Australia Bank, said of the rise in U.S. yields.
“Some people have mentioned that when Japan intervened in April and May, it was suggested that if the Bank of Japan had to get rid of Treasury bills to finance the intervention, that could have an impact.
“Australian yields have been much higher post-CPI, and I think for once that has had a bit of a spillover effect into bond markets elsewhere.
Australia’s upward inflation surprise on Wednesday caught traders off guard and prompted markets to raise the odds of another interest rate rise this year, leading to a rise in domestic yields.
This gave the Australian dollar a slight boost in the previous session, although it was short-lived as the Antipodean currency failed to maintain its gains against a stronger dollar.
The Australian dollar fell 0.02% to $0.6646, while the New Zealand dollar fell 0.07% to $0.6079.
($1 = 160.6500 yen)
