By Kevin Buckland
TOKYO (Reuters) – The yen fell to a 38-year low against the dollar and a record low against the euro on Wednesday as the Japanese currency continued its slide with Japanese officials largely on the sidelines amid the risk of intervention.
The dollar rose, recovering losses from Tuesday, when dovish comments from Federal Reserve Chairman Jerome Powell overshadowed a strong domestic jobs report.
The euro held firm, supported by a steady rise in domestic inflation on Tuesday, suggesting the European Central Bank will take its time before cutting interest rates again. Sterling steadied ahead of Thursday’s U.K. election.
The yen fell about 0.2 percent to 161.875 yen per dollar for the first time since December 1986, and fell by about the same margin against the euro to reach an all-time low of 173.80 yen.
Japanese authorities have been largely quiet on the yen this week, with Finance Minister Shunichi Suzuki only commenting on Tuesday that the moves were being closely watched. He declined to repeat a frequent warning that the ministry was ready to act.
Atsushi Mimura took over as the finance ministry’s currency czar on Monday, replacing Masato Kanda, who oversaw a 9.8 trillion yen ($60.67 billion) multi-day intervention in late April and early May, when the currency fell to 160.82 to the dollar.
“I feel like there was a lot of expectation that there would be some action from the Treasury on Monday, and that didn’t happen,” said Bart Wakabayashi, a branch manager at Bank of America. State Street (NYSE:) in Tokyo. “There may be some testing for the authorities.”
“I know there is a change at the top, but that is no reason to stay silent,” he added.
Some had expected authorities to take action on Thursday, when tight liquidity due to a U.S. holiday could exacerbate market moves, but Wakabayashi said it might be hard to justify intervention as the yen has been falling in an orderly fashion.
Analysts also pointed to the increasing chances of Donald Trump winning a second term, as Trump’s policies are likely to lead to higher US bond yields, which the USD/JPY pair tends to track.
“A Trump presidency is likely to lead to higher fiscal deficits, inflation and yields at the mid- to high-end of the US interest rate curve, offsetting the impact of Fed rate cuts,” said Tony Sycamore, a market analyst at IG. “The increased risks of that have moved the goalposts higher.”
The Japanese yen, which measures the currency against the euro, the pound, the yen and three other major currencies, rose 0.1% to 105.78, recouping most of its 0.14% decline in the previous session.
Federal Reserve Chairman Jerome Powell said at a European Central Bank conference in Sintra, Portugal, on Tuesday that the U.S. economy had made significant progress on inflation, even as he added that more supportive data was needed to start cutting interest rates.
U.S. data released overnight showed job openings rose in May after falling sharply in the previous two months. The closely watched monthly payrolls report is due out on Friday.
Eurozone inflation eased last month, but the vital services component remained stubbornly high, raising concerns that domestic price pressures could remain elevated.
The euro fell 0.07% to $1.0739, but is still trading near the top of its range since mid-June.
The pound held steady at $1.2680 after rising 0.28% on Tuesday.
The opposition Labour Party is widely expected to win Thursday’s election, ending 14 years of Conservative rule. The UK’s tight finances mean any new government will have little scope to increase spending, which could remove the weakness in the pound and reduce volatility.
Elsewhere, the Australian dollar rose 0.11% to $0.6675, supported by better-than-expected retail sales data, which kept the risk of a Federal Reserve rate hike alive.
Sterling fell to an eight-month low in offshore trade amid signs that local authorities are willing to tolerate a weaker currency, and was boosted by the lowest reading since October in the Caixin/S&P Global Services Purchasing Managers’ Index.
The yuan fell to 7.3114 against the dollar for the first time since November 3, 2023.
(1 dollar = 161.5300 yen)