Yen Stronger as Traders Wary of Intervention

Yen Strengthens as Traders Anticipate Possible Intervention

By Karen Brettell

NEW YORK, Dec 24 (Reuters) - The Japanese yen gained modestly against the U.S. dollar on Wednesday as traders focused on whether weakness in the Japanese currency will prompt officials in the country to intervene.

Volumes are light ahead of Thursday’s Christmas Day holiday, when U.S. and many international markets will be closed.

The yen has weakened despite the Bank of Japan delivering a long-anticipated rate hike last Friday. The increase had been well-telegraphed and comments from Governor Kazuo Ueda disappointed some in the market who had bet on a more hawkish tone.

That has left investors vigilant to official yen-buying from Tokyo, particularly as trading volumes thin towards the year-end, which analysts say is an opportune time for authorities to take action.

TOKYO'S READINESS TO INTERVENE

Finance Minister Satsuki Katayama said on Tuesday that Japan has a free hand in dealing with excessive yen moves, issuing the strongest warning to date on Tokyo's readiness to intervene.

Her remarks arrested the yen's decline. The Japanese currency was last up 0.25% on the day against the U.S. dollar at 155.84 per dollar. The dollar reached 157.77 yen on Friday. 

“The yen has pulled back from recent highs as repeated warnings from Japanese officials about possible FX intervention limited gains,” FX analysts at LMAX Group said in a note on Wednesday.

DOLLAR'S PERFORMACE IS MIXED

The dollar was otherwise mixed.

The dollar index, which measures it against a basket of other currencies, including the yen and the euro, rose 0.07% to 97.96, with the euro down 0.14% at $1.1778. Sterling weakened 0.13% to $1.3498. 

The Australian dollar strengthened 0.07% to $0.6705 and the Canadian dollar gained 0.11% to C$1.367 per U.S. dollar.

The U.S. currency has fallen this year as the Federal Reserve cuts rates, with more easing expected next year while analysts expect other central banks to have completed their rate reductions.

Fed officials are balancing the risks of a slowing jobs market against concerns about stubbornly high inflation.

Data last week showed that consumer prices rose less than economists’ had expected in November, but traders are wary about gaps in collecting economic data following the federal government’s 43-day shutdown.

A release on Wednesday showed that the number of Americans filing new applications for jobless benefits unexpectedly fell last week, but the unemployment rate likely remained high in December amid sluggish hiring. 

Fed funds futures traders are pricing in two 25-basis point rate cuts next year, with the first most likely in April. 

In cryptocurrencies, bitcoin fell 0.39% to $87,330.

(Reporting by Karen Brettell in New York; Additional reporting by Rae Wee in Singapore and Alun John in London; Editing by Jamie Freed, Gareth Jones and Barbara Lewis)