Written by Stefano Ribaudo
(Reuters) – The yen hit a 34-year low against the dollar and a 16-year low against the euro on Thursday, with investors expecting the Bank of Japan's central bank meeting that ends on Friday not to be hawkish enough to support the Japanese currency. .
A day earlier, the buoyant dollar surpassed 155 yen for the first time since 1990 after trading in a narrow range over several days.
The US currency rose on Thursday to its highest level in 34 years at 155.74 yen, and rose in the latest trading by 0.2% to 155.62.
Some market participants see the 155 level as a line in the sand that will prompt the Tokyo authorities to take the necessary measures.
The euro recorded its highest level in 16 years at 166.98 yen, and rose in the latest trading by 0.45% to 166.95.
Japanese authorities are “between a rock and a hard place,” said Athanasios Vamfakidis, global head of G10 FX strategy at Bank of America. “If they do not intervene, a break above the 155 level could attract speculative flows as markets expect intervention.”
He added: “If they buy the yen, pressures could arise because many investors are waiting for intervention to sell the Japanese currency,” considering that the yen may reach 160 even if there is intervention.
Bank of Japan Governor Kazuo Ueda is expected to take into account what will happen in 2022, when dovish comments by his predecessor sent the yen lower, forcing Tokyo to intervene to support the currency.
However, the possibility of Japanese interest rates remaining low for an extended period and expectations of a delayed start to US rate cuts continued to push the yen lower.
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Analysts expect the Bank of Japan meeting to produce a marginally upbeat outcome, with the central bank likely to just announce a modest reduction in bond purchasing plans.
However, the dollar suffered some losses against other currencies, after a slight decline earlier in the week when upbeat business activity data in the euro zone and the United Kingdom sent the euro and pound higher.
The euro rose in the latest trading by 0.25 percent to $1.0724, moving away from the highest level in more than a week that it recorded on Wednesday, while the pound sterling increased 0.4 percent to $1.2511.
German consumer sentiment is set to rise in May on the back of brighter household income expectations, a survey showed.
The dollar fell 0.2 percent to 105.59 against a basket of currencies, although it moved away from the lowest level in nearly two weeks that it recorded in the previous session.
Investors await US economic data later in the session with analysts pointing to the core US GDP deflator for the first quarter, which could provide clues to Friday's release of the Personal Consumption Expenditures (PCE) price index – the Fed's preferred indicator. . Inflation measure.
“Today’s Q1 core PCE deflator could be a market driver,” said Chris Turner, global head of markets and regional head of research at ING.
“Buying the dollar is a very crowded trade, and the fairly sharp sell-off in the dollar earlier this week on the back of weak US PMI readings served as a reminder that long dollar positions are not bulletproof.”
Some analysts recently said they might change their bullish view on the US currency if weak rhetoric on the dollar and actual policy proposals, such as taxing incoming capital, start appearing in official political campaigns. Barring such developments, they remain positive on the US currency.
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“Until the rest of the world starts to outperform the US, and until the Fed sets a clearer horizon to start easing policy, we continue to believe it will be difficult for the market to rise against the dollar,” Thierry said. Weissman is a global FX and interest rates strategist at Macquarie.
Trading in Asia was weak with Australian markets closed for holiday.
It added 0.45% to US$0.6526, supported by a decline in interest rate cut bets from the Reserve Bank of Australia (RBA) this year after the country's consumer price inflation slowed less than expected in the first quarter.