Yen slips but holds intervention gains, traders alert to more action
The yen slipped on Tuesday but held on to most of its intervention-driven gains, after last week's joint action by Tokyo and Washington to shore up the currency kept speculators wary of rebuilding bearish positions.
The yen was last down 0.3% at 157.72 per dollar, giving back some of its gains after hitting a three-month high of 155.20 the previous session, but remaining well above its 40-year low of 163.99 touched in July.
The Japanese currency had surged as much as 5% over the last three trading sessions, with Japan confirming coordinated yen-buying intervention on Friday with the U.S. in a rare move.
"While joint intervention may prove more effective at helping to provide support for the yen in the near-term, we still believe that it can only buy time," said Lee Hardman, senior currency analyst at MUFG.
"There will need to be a change in fundamentals as well to encourage a sustainable reversal of the yen weakening trend that has been in place over the last five years," he said, referencing Japan's much lower interest rates than the U.S.
Two market sources told Reuters the U.S. Treasury bought yen for euros last week instead of selling dollars, a highly unusual move likely aimed at helping Japan strengthen the yen without encouraging a view that Washington wants a softer dollar.
Against the euro, the yen slipped 0.5% to 181.68, down from Monday's almost nine-month high of 179.44.
Monday's surge in the yen stirred speculation that Japanese authorities had intervened again, although officials offered no confirmation.
Analysts at Citi said trading volumes in dollar/yen hit roughly $27 billion in the early morning window on Monday, compared with the recent averages of $1.9 billion.
Bank of America strategists said 155 yen could prove to be a critical inflection point in the market as the currency pair found a floor around that level during the intervention in April and May this year.
DOLLAR TAKES A BREATHER
The dollar, meanwhile, was nursing losses, having slid in the wake of the yen-buying intervention and on the back of falling oil prices.
U.S. President Donald Trump said on Monday that talks with Iran were under way, warning that it was a "last chance" for Tehran to sign a good deal to end the five-month-old war. Iran denied that any negotiations were being held or planned, however.
Against the greenback, the euro was little changed at $1.152, having hit a 1-1/2-month peak of $1.156 in the previous session, while sterling fetched $1.344.
The dollar index was roughly flat at 99.38, after rising off 99.42, which it touched on Monday.
Meanwhile, the Australian dollar rose 0.5% to $0.704.
Investors had sold the dollar after the U.S. Federal Reserve kept interest rates on hold last week, with its losses accelerating following the yen intervention.
"This week's nonfarm payrolls for July is a key input into the timing of the eventual tightening cycle," said Joseph Capurso, a strategist at Commonwealth Bank of Australia, referring to the closely watched U.S. jobs report due on Friday.
Markets are currently pricing in roughly 35 basis points' worth of Fed rate hikes by December.
