By Harry Robertson and Ray Wee
LONDON/SINGAPORE (Reuters) – The yen rose on Tuesday as investors reacted to comments from a senior Japanese politician that added to pressure on the Bank of Japan to keep raising interest rates to shore up the currency.
Meanwhile, the dollar rose slightly as traders awaited inflation data later in the week, while the Australian and New Zealand dollars also suffered after China’s surprise interest rate cut.
The dollar was last down 0.55% against the Japanese yen at 156.13 yen, after falling to a five-week low of 155.375 yen on Thursday.
Senior ruling party official Toshimitsu Motegi said overnight that the Bank of Japan should signal more clearly its intention to normalize monetary policy, including through steady interest rate hikes. The BOJ is scheduled to set interest rates on July 31.
“The yen drew support from more comments from Japanese politicians overnight,” said Lee Hardman, a currency strategist at Mitsubishi UFJ Bank, adding that his comments indicated “growing concern” among politicians about the Bank of Japan’s policy.
“This follows calls last week from Digital Transformation Minister Kono Taro who called on the Bank of Japan to raise interest rates to provide further support to the yen.”
The yen found some support following Tokyo’s recent bouts of intervention to support the currency and as traders awaited the Bank of Japan’s decision. However, most economists polled by Reuters expect the BOJ to keep interest rates unchanged at the meeting.
The dollar index, which measures the greenback’s performance against six major currencies, rose slightly to 104.36, after falling to a four-month low of 103.64 last week.
The euro fell 0.22% to $1.0868, and the pound fell 0.15% to $1.2911.
Trading was relatively thin during the week with little economic data until the release of US personal consumption expenditure inflation figures for June on Friday.
Market reaction to US President Joe Biden’s decision to withdraw from the election race was muted, although there was some pullback in the so-called Trump trade, which saw the dollar and US Treasury yields fall slightly.
The Australian and New Zealand dollars struggled to regain their footing on Tuesday after China moved to cut several key interest rates.
China surprised markets on Monday by cutting short- and long-term interest rates sharply in the first large-scale move of its kind since August, signaling its intent to boost growth in the world’s second-largest economy.
The Australian and New Zealand currencies, often used as liquidity buffers, extended losses after falling 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 yuan and the dollar, it tends to reflect a more liquid and freer expression of the realities that the Chinese economy is currently facing,” said Rodrigo Catril, chief foreign exchange strategist at National Australia Bank.