Watch for BOJ Intervention: Dollar at 7-Month High Against Yen

The US dollar rose to a more than seven-month high against the Japanese yen on Thursday after the two countries’ central banks outlined their divergent policy stances.

Jerome Powell, chairman of the US Federal Reserve, said two rate rises were likely and did not rule out the possibility of a hike next month.

Meanwhile, Bank of Japan Governor Kazuo Ueda, who spoke on the same panel on Wednesday, reiterated that “there’s still some distance to go” in sustainably achieving 2% inflation accompanied by sufficient wage growth – conditions the BOJ has set for considering an exit from its ultra-easy stimulus.

The dollar’s surge of as much as 11.6% since late March to reach 144.71 yen for the first time since November 10 has prompted increased verbal warnings from Japanese government officials that the move may have been too rapid.

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Watch for BOJ intervention

Japan’s ministry of finance and the BOJ intervened in the currency market last autumn when the dollar strengthened beyond 145 yen.

The dollar was last down 0.2% at 144.22.

“The playbook of verbal intervention is consistent with intervention happening soon and if it gets above 145 we could quite easily get to see them intervene again,” ING global head of markets Chris Turner said.

“Last year they were bailed out by US rates, inflation and the dollar all turning lower but this time around there’s a risk they might get sucked into a longer campaign if inflation proves sticky.”

The US dollar index, which measures the currency against six major peers, including the yen, was flat at 102.92.

Yuan weakens despite stronger setting

China’s yuan weakened toward a seven-month trough despite the People’s Bank of China setting a stronger than expected official rate, in the latest signal of discomfort at the pace of recent declines.

The dollar added 0.1% to 7.2492 yuan in the offshore market, taking it close to the previous day’s 7-1/2-month low of 7.2694.

The PBOC set the midpoint rate at 7.2208, in what analysts at Citi called “the most forceful sign yet of official discomfort at the pace of yuan depreciation,” although adding they are “doubtful this will prevent more upside, as it has proven ineffective over time in the past.”

The Australian dollar rose 0.4% to $0.6632 after stronger than expected retail sales data.

Euro up, Swedish crown hits record low

The euro was up 0.1% at $1.0921, after mixed inflation data from German states and Spain ahead of tomorrow’s euro area wide figure.

Consumer prices in North Rhine Westphalia, Germany’s most populous state, rose 6.2% on an annual basis in June, up from 5.7% in May, and a similar pattern was observed in other states.

Meanwhile, Spain’s 12-month inflation fell to 1.9%, the lowest since March 2021 but above the 1.7% expected by economists polled by Reuters.

Sweden’s crown hit a record low of 11.829 per euro after the central bank raised its interest rate and increased its pace of bond sales, or quantitative tightening (QT). It was last at 11.788 per euro, down 0.2%.

“They’re expressing confidence that a faster rate of QT is going to deliver a stronger crown and I think that’s a bit unproven,” ING’s Turner said.

“One of the arguments of providing government bonds back to the open market is that they can improve liquidity and deliver higher bond yields but the crown hasn’t really bought into that just yet.”

The Russian rouble weakened past 87 against the dollar to a 15-month low, hampered by domestic political risk concerns after an aborted mutiny over the weekend.