Dollar slips against yen but heads for broad weekly rise

By Laura Matthews

NEW YORK (Reuters) -The dollar weakened against the yen on Friday, after Japanese officials stepped up verbal intervention to stem the currency's decline, even as the greenback broadly was headed for its biggest weekly rise in six weeks.

Against other major currencies, the U.S. unit was well-bid, with the dollar index, hitting its highest since late May.

 The yen popped higher after Japanese Finance Minister Satsuki Katayama said intervention was a possibility to deal with excessively volatile and speculative moves, leaving traders on alert for signs of yen buying from Tokyo.

   Meanwhile, remarks from New York Fed President John Williams on Friday, that the U.S. central bank can still cut interest rates "in the near term" without putting its inflation goal at risk, also helped to cap the dollar's strength.

"That pretty much was the linchpin that moved the market," said Michael Boutros, senior technical strategist at StoneX. "He carries a lot of weight, obviously."

 In afternoon trading, the Japanese currency was up 0.63% at 156.549 per dollar. It hit a nearly 10-month low of 157.90 on Thursday and was still on track for a 1.2% loss for the week.

John Velis, head of Americas macro strategy at BNY Markets, said the yen has been kept in check because intervention threats are losing some credibility.

"And there is still this expectation of a decent shot of the Bank of Japan raising rates this year, if not early next year. So, that has kind of mitigated the yen's movement," Velis added.

The currency, pressured by concerns over Japan's worsening fiscal position, has fallen around 6% since Prime Minister Sanae Takaichi was elected leader of her party on October 4. Takaichi's cabinet approved a 21.3 trillion yen ($135.4 billion) economic stimulus package on Friday.

Tokyo spent 5.53 trillion yen, or nearly $37 billion, in July 2024 to intervene in the foreign exchange market to haul the yen away from 38-year lows.

Against the euro, the yen was pinned near its lowest since the introduction of the single currency, although the euro was last down 0.83% at 180.01 yen.

FED RATE CUT BETS PICK UP AGAIN 

In the broader market, the dollar was set for a weekly gain, and markets are now betting the Federal Reserve will cut rates again next month.

The release of a delayed U.S. nonfarm payrolls report on Thursday painted a mixed picture of the labour market and did little to alter expectations about a Fed rate cut in December, as policymakers continue to navigate through an economic fog brought about by the U.S. government shutdown.

Williams' comments boosted market expectations of a rate cut but some Fed policymakers diverged from his views. Boston Fed President Susan Collins said on Friday that monetary policy is in the right place amid a resilient economy, and the Dallas Fed's Lorie Logan called for holding rates "for a time" to assess how much of a brake the current level of borrowing costs is putting on the economy.

Fed funds futures traders are now pricing in a 71% chance of a December cut, up from 39% on Thursday, according to the CME Group's FedWatch Tool.

The euro fell 0.16% to $1.1511 and was on track for a 1% weekly decline.

It held steady after preliminary PMI data showed euro zone business activity grew this month, even as manufacturing activity slipped into contractionary territory.

Sterling was down 0.27% at $1.3105 as investors awaited Britain's budget, with data showing the economy struggled before next week's major test for the currency and bond market. The pound was set to lose 0.5% for the week. 

The dollar index, which measures the greenback against a basket of other major currencies, flirted with a 5-1/2-month peak and last stood at 100.19. 

In cryptocurrencies, bitcoin fell to a seven-month low and was last down 3.52% at $84,146.2. 

(Reporting by Laura Matthews in New York; Additional reporting by Ozan Ergenay in London and Samuel Indyk and Rae Wee. Editing by Kirsten Donovan, Mark Potter and Edmund Klamann)