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Yen falls as firm US data boosts Fed hike bets

Sydney - The yen fell against the dollar for the sixth day as firm US economic data raised expectations for an increase in interest rates, while Bank of Japan Governor Haruhiko Kuroda said negative rates have helped the economy.

The Japanese currency lost ground against all but one of its 16 major peers on Tuesday as the Nikkei 225 Stock Average advanced for a second day.

The dollar strengthened and treasury yields climbed after data showed manufacturing in the world’s largest economy expanded in September, fueling confidence in a recovery that is key to determining the Federal Reserve’s path toward tightening.

“The dollar-yen looks to be finding some support from higher US yields and broadly positive risk sentiment, including gains in the Nikkei, defying Wall Street’s losses,” said Sean Callow, a senior strategist at Westpac Banking in Sydney.

The yen fell 0.4% to ¥102.08/$ at 07:35. It extended its longest run of losses against the greenback since the period ended August 31.

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, rose 0.2%. The benchmark 10-year Treasury yield was little changed in Tokyo from Monday, when it completed a two-day, six-basis-point increase.

Jobs report

A US jobs report due later this week is forecast to show a pickup in the pace of hiring and will help shape expectations for Fed’s monetary policy. The probability of a rate hike by December rose to 61% on Monday, up 10 percentage points from a week earlier, futures data show.

Japanese companies trimmed their forecasts for inflation for coming years, underscoring the difficulty BOJ faces as it struggles to reach the price target of 2%. The large manufacturers forecast that the yen will trade at an average of ¥107.92/$ in the year through March 2017, compared with ¥111.41 in the previous survey.

The dollar is “benefiting from rising US treasury yields on the back of the stronger manufacturing data last night, but downside risks remain arising from the BOJ’s bond taper,” Gareth Berry, a foreign-exchange and rates strategist in Singapore at Macquarie Bank.

Pound drops

The pound held near a three-decade low it touched in the days following June’s Brexit referendum after UK Prime Minister Theresa May said she’ll begin the process of withdrawal from the European Union in the first quarter of 2017 and that she’ll curb immigration, stoking speculation the UK is headed toward a so-called hard Brexit - with limited access to the EU’s single market.

The British currency was little changed at $1.2849. It declined to $1.2817 earlier, the weakest since dropping to a 31-year low in July. The Bloomberg British Pound Index, which measures the UK currency against major peers, slumped to the lowest since the data began in 2004.

The Australian dollar was little changed after the Reserve Bank of Australia left its cash rate unchanged at a record low 1.5% as forecast by all 28 economists in a Bloomberg survey.

“Markets have already priced out a rate cut this year and that’s one of the reasons why the Aussie has been resilient,” said Roy Teo, a senior currency strategist in Singapore at ABN Amro Bank. “The RBA may want to keep some ammunition for next year, just in case they need to act.”

New Zealand’s currency climbed 0.2% after business confidence rose in the third-quarter.

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