By Rocky Swift
TOKYO, May 1 (Reuters) – The yen trimmed gains against the dollar on Friday, but was still poised for its strongest weekly rally in more than two months after Japanese authorities stepped into the markets to haul the currency back from near two-year lows.
Investors remained on high alert for further action from Japan’s Ministry of Finance (MOF), with May 1 holidays thinning markets around Asia. A Japanese official hinted that further intervention could come as the nation heads into its Golden Week holidays next week.
The euro edged higher after the European Central Bank signaled it was ready to hike interest rates. The Aussie dollar held at a near four-year high as global shares remained buoyant.
“The difficulty is they are sort of fighting against some underlying fundamentals there,” Ken Crompton, the head of rates strategy at National Australia Bank, said about Japan’s intervention efforts.
“The weak yen is probably there for a reason and how successful the MOF will be in fighting against the tide on a sustained basis is sort of hard to see at the moment,” he added.
The yen stepped back 0.35% against the greenback to 157.15 per dollar, but Thursday’s surge put the Japanese currency on course for a 1.4% jump this week, the most since mid-February.
The dollar index, which measures the greenback against a basket of currencies, fell 0.04% to 98.11, while the euro inched up 0.04% to $1.1735.
Japan’s top currency diplomat Atsushi Mimura on Friday said speculative positions remain in markets, putting traders on notice of possible further strikes to bolster the yen during the holiday period. Two sources familiar with the matter told Reuters that officials had intervened to buy the yen on Thursday, after it hit its weakest level against the dollar since July 2024.
The sudden jolt in the dollar-yen rate occurred in London trading hours and followed earlier comments from Japanese Finance Minister Satsuki Katayama that the time for “decisive” action was nearing.
“Past intervention has had only a temporary effect on the yen if the underlying fundamentals haven’t shifted,” Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia, wrote in a note. “Continued yen depreciation may prompt several rounds of intervention, which in turn would cause larger two-way swings in USD/JPY.”
In the oil market, prices remained elevated following threats by Tehran of “long and painful strikes” on U.S. positions if Washington renewed attacks on Iran. As a U.S. legal deadline loomed for President Donald Trump to end the conflict, a senior administration official said late on Thursday that a ceasefire in place since April 7 constituted a termination of hostilities.
The currencies of Japan and other nations dependent on energy imports had been in decline since late February, when U.S.-Israeli strikes on Iran started, leading to the closure of the Strait of Hormuz shipping lane for oil.
The dollar index slid 1.76% in April after a surge in March that underscored the U.S. economy’s relatively lower exposure to higher oil prices compared with the euro zone and Japan.
The ECB and the Bank of England kept interest rates unchanged on Thursday, as expected, following holds earlier in the week by the Federal Reserve and Bank of Japan. Even so, the ECB and BOJ signaled readiness to hike rates as soon as June to contend with imported energy inflation.
Data on Friday showed Japan’s core inflation slowed in April as government subsidies blunted the effect of energy prices, but analysts expect price gains to accelerate from here, keeping pressure on the central bank to hike rates.
“Combined with the Bank of Japan’s ‘hawkish hold,’ if the market starts to price in a rate hike at the next meeting in June, yen buying could gather momentum,” Sakura Koike, an analyst at Mitsubishi UFJ Bank, said in a note.
The Australian dollar strengthened 0.04% versus the greenback to $0.7202, after closing above the $0.72 level on Thursday for the first time since June 2022. New Zealand’s kiwi weakened 0.03% to $0.5905.
In cryptocurrencies, bitcoin gained 0.97% to $77,206.95 and ether rose 0.98% to $2,285.67.
(Reporting by Rocky Swift; Editing by Shri Navaratnam)
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