By Gertrude Chavez-Dreyfus
NEW YORK (Reuters) – The yen fell against the U.S. dollar on Wednesday to its lowest level since mid-1990 above the key 155 area, with markets alert to any signs of Japanese authorities intervening to support its currency.
As the yen weakened, the US currency rose, recovering against most currencies from declines caused by data on Tuesday that showed US business activity slowing this month.
The dollar rose to 155.37 yen, its highest level since mid-1990, before falling again in volatile trading, a sign of market tension around the 155 yen level. The last one was at 155.26, up about 0.3%.
The weakness of the yen against the dollar has ignited market concern about currency intervention. Japanese Finance Minister Shunichi Suzuki and other policymakers said they were monitoring currency movements closely and would respond as needed.
Takao Ochi, a senior ruling party official, told Reuters that a drop in the currency towards 160 could lead to intervention. If the yen falls further towards 160 or 170 yen to the dollar, “it may be considered excessive and may prompt policymakers to consider some measures,” Ochi said.
However, market participants took Japanese comments on the yen with some skepticism.
“The move in the dollar/yen rate is in line with what is happening with a broad revaluation of the dollar,” said Jayati Bharadwaj, global foreign exchange strategist at TD Securities in New York. “It is not driven by BOJ (Bank of Japan) speculation, as it was sometime last year, but a broad-based move in the dollar supported by fundamentals.”
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She added that if the Bank of Japan intervenes on behalf of the Ministry of Finance, it will not target a “correct number.”
“I don't think there is a specific number that the Bank of Japan takes into account. It should be the size of the move,” she added.
The Bank of Japan is scheduled to begin a two-day policy meeting on Thursday, and is widely expected to leave policy settings and bond purchase amounts unchanged, after it raised interest rates for the first time since 2007 just last month.
Bank of Japan Governor Kazuo Ueda said the central bank may raise interest rates again if the yen's decline causes inflation to rise significantly.
The yen's decline comes after a series of strong US inflation data pushed the dollar to its highest levels in five months and reinforced expectations that the Federal Reserve is unlikely to be in a rush to cut interest rates this year.
The index, which measures the currency's value against six major currencies led by the euro, rose 0.2% to 105.84. Earlier, the index reached 105.59, its lowest level in almost two weeks, after surprisingly strong European activity data on Tuesday and slowing business growth in the United States.
The dollar pared gains on Wednesday after data showed that new orders for major capital goods manufactured in the United States increased moderately in March and the previous month's data was revised down. The report noted that corporate spending on equipment is likely to remain weak in the first quarter.
The euro was little changed at $1.0697 after Tuesday's rise in the wake of data showing business activity in the euro zone grew at its fastest pace in nearly a year.
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Meanwhile, the pound sterling rose 0.1% to $1.2460, extending gains made on Tuesday thanks to data showing that British companies recorded the fastest growth in activity in nearly a year. The pound also received support from statements by Hugh Bell, chief economist at the Bank of England, on Tuesday, who said that interest rate cuts were still somewhat far-fetched.
Friday sees the release of the Fed's preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index. Markets currently expect a 70% chance of the first US rate cut by September, according to the Chicago Mercantile Exchange's FedWatch tool.
In other currencies, the Australian dollar rose 0.1 percent to $0.6497, after hitting a high of $0.6530 for the first time since April 12, as it rose on the back of hotter-than-expected consumer price data. This has led to markets abandoning their hopes of any interest rate cuts by the Reserve Bank of Australia in the near term.
