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Sydney - The yen strengthened beyond ¥100/$ for a second time this week as the US currency’s bid to break out from a three-month low stalled after Federal Reserve minutes indicated officials were divided over the urgency to raise interest rates.
A gauge of the dollar has fallen more than 5% this year as investors bet the Fed will raise interest rates at most once this year, compared with policy makers’ forecasts at the start of 2016 for four increases. That means the US central bank is less likely to diverge from the Bank of Japan (BoJ) and European Central Bank (ECB), which are boosting stimulus to spur flagging growth.
“There’s increasing doubt the Fed rate hike in December may even happen,” said Angus Nicholson, a market analyst at IG in Melbourne. “In that scenario, a much weaker US dollar will see quite a noticeable strength in the Japanese yen. There’s a view there in the market that there’s little the Japanese government or the Bank of Japan can do about it in such a scenario.”
The yen appreciated 04% to ¥99.93/$ as of 08:20 after advancing to ¥99.54/$ on Tuesday, the strongest since June 24. The currency has risen for five straight days, heading for the longest winning streak since June.
Japanese authorities are closely watching for speculative moves in the exchange rate as it has been volatile, Vice Finance Minister Masatsugu Asakawa said Thursday. Strategists at Bank of Tokyo-Mitsubishi UFJ and Morgan Stanley predict the yen will extend this year’s 20% gain versus the dollar.
“The BOJ is running short of tools which will have a big market impact,” said Janu Chan, a senior economist at St. George Bank in Sydney. “Yen intervention may be one tool left in the bag for authorities.”
The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, fell 0.4% after dropping to the lowest level since May on Tuesday. The greenback weakened 0.2% to $1.1315 per euro.
The dollar gauge pared gains on Wednesday following the release of the July Fed minutes, which showed policy makers weighing jobs-market strength versus little risk of a marked pickup in inflation.
The commentary deflated expectations for rate increases that had been fueled by New York Fed President William Dudley and Atlanta Fed President Dennis Lockhart, who had indicated officials might increase borrowing costs as early as next month.
Australia’s dollar rose the most in two weeks after a government report showed the nation added 26 200 jobs in July, more than double the median expectation in a Bloomberg survey of economists.
The Aussie climbed 0.7% to 77.09 US cents, the biggest advance since August 2.
