SINGAPORE/LONDON (Reuters) -The yen found some stability on Tuesday, just shy of its weakest level in 34 years, as verbal intervention by Japanese officials continued, while the dollar was on the back foot.
The euro was last at $1.0850 and the pound at $1.2645, both slightly firmer on the day and in the middle of their recent ranges.
The yen was at 151.25 yen per dollar, also a touch stronger on the day but after sliding more than 1% since the Bank of Japan’s (BOJ) landmark rate hike last week.
Despite that rate increase, traders continue to focus on the still-stark interest rate differentials between Japan and the rest of the world, particularly the United States. A break past 154.94 per dollar, hit in October 2022, would take the Japanese currency to its weakest since 1990.
In 2022 Japanese authorities intervened in currency markets to support the yen, and Japanese Finance Minister Shunichi Suzuki on Tuesday said he would not rule out any measures to cope with the yen’s weakening, echoing a warning from Tokyo’s top currency diplomat the previous day.
“Dollar/yen is stuck around this 151.50 level. People want to go long/dollar yen because of carry returns, but if it goes to 152 or 153 they may get punished by the currency authorities so they don’t want to try,” said Yusuke Miyairi, FX strategist at Nomura.
The carry trade sees investors borrow in low yielding currencies to invest in higher yielding ones.
Market observers note positioning in options markets could make it harder for the dollar to climb through roughly 152 yen, but could then exacerbate moves beyond that.
“152 is the key level and past that dollar/yen could rise at quite a fast pace, and that means intervention is a risk,” said Miyairi.
Away from Asia, currency volatility is low, and traders have found few catalysts on which to trade in recent weeks.
This week’s economic data is fairly light ahead of the Federal Reserve’s favoured inflation measure on Friday, which could guide the path of the U.S. interest rate outlook.
The U.S. core personal consumption expenditures (PCE) price index is seen rising 0.3% in February, which would keep the annual pace at 2.8%.
The Swiss franc, one of the few European currencies which does have a clear direction since the Swiss National bank surprised markets by cutting interest rates last week, continued its weakening trend
The dollar was up 0.17% at 0.9010 francs, and the euro was up 0.3% at 0.9775 francs, close to its nine-month top of 0.97875 hit after the SNB’s move.
China’s yuan, which has also been on traders’ radars especially since its sudden sharp fall on Friday, was last a little weaker at 7.219 per dollar in the onshore market, despite a firmer-than-expected fix from the People’s Bank of China.
The offshore yuan was a touch stronger at 7.249 per dollar.
That helped China exposed Antipodean currencies to firm, and the New Zealand dollar rebounded from a four-month low to $0.6018, while the Aussie steadied at $0.6545.
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