Written by Brigid Riley
TOKYO (Reuters) – The dollar was mostly steady on Thursday as traders kept their nerve ahead of next week's U.S. inflation data and what it could portend for Federal Reserve (US central bank) policy, while hawkish views from members of the Bank of Japan helped the yen slow down… Its decrease.
Against the Japanese yen, the dollar has been slowly rising in recent days after falling more than 3% last week, the largest weekly percentage decline since early December 2022.
But the yen found some support in the Bank of Japan's views summary released on Thursday, which showed board members were overwhelmingly hawkish at their April policy meeting, with many calling for steady rate hikes.
“The Bank of Japan appears to be hinting at the next rate hike, which could come in June or July as the final results of wage negotiations emerge,” said Charu Chanana, head of currency strategy at Saxo Bank.
However, the yen's rise was short-lived, as the market was decidedly bearish on the currency.
Last week's Fed policy meeting and a downward surprise in US job growth have increased markets' bets on two interest rate cuts this year. But there is still a gap between the very low yields in Japan and the yields in the United States.
“The market is not really worried about the sudden shift by the Fed. So, in that sense, the market is biased towards the bullishness of the dollar against the yen,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.
He added that with traders still concerned about possible currency intervention by Tokyo, the USD/JPY is likely to remain confined to the 155-160 range.
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Market participants suspect that Tokyo spent about $60 billion last week to halt the yen's decline after it reached its lowest level in 34 years against the dollar at about 160 yen.
Masato Kanda, Japan's chief currency diplomat, on Thursday confirmed a warning that Tokyo is ready to take action in the currency market.
The Japanese yen was mostly steady at 155.57 to the dollar.
Rate paths in focus
Market focus will soon turn to the April US Producer Price Index (PPI) and Consumer Price Index (CPI) due out next week, which traders will be watching for signs that inflation has resumed its downward trend towards the Fed's 2% target rate. %.
“This is a crucial report for the Fed, as another version that casts doubt on the low inflation narrative could jeopardize its credibility,” Saxo Bank's Chanana said.
Boston Fed President Susan Collins said overnight that the US economy needs to cool to bring inflation back to target.
The index, which measures the US currency against a basket of currencies, was unchanged at 105.51.
The British pound settled at $1.24975 ahead of the Bank of England's monetary policy decision later on Thursday.
The Bank of England is likely to take another step towards its first interest rate cut in four years as inflation declines.
The big question for investors is whether the Bank of England suggests a cut could come in June – when the European Central Bank has already indicated it will lower borrowing costs.
The euro settled at $1.0748.
Elsewhere, the China index was marginally higher at 7.2257, after data revealed that China's exports and imports returned to growth in April after contracting the previous month.
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That could mean a potential delay in the interest rate cuts that some believe China will need to meet its 2024 GDP target.
In cryptocurrencies, Bitcoin rose in the latest trading by 0.09% to $61,618.12.