Yen weakens past 145 per dollar, yuan propped by stimulus hopes

Renewed decline has stoked speculation that intervention by Japanese authorities could be imminent

SINGAPORE (Reuters) – The yen weakened past the closely watched 145 per dollar level on Friday, keeping traders wary of potential intervention by Japanese authorities, while the yuan crept higher as hopes for further stimulus from Beijing gathered steam.

The yen bottomed at 145.07 per dollar in early Asia trade, its lowest in over seven months, though pared losses over the course of the trading day and last bought 144.65 per dollar.

It was on track for a quarterly loss of more than 8 per cent, its worst in a year, amid the Bank of Japan's (BOJ) ultra-dovish stance in the face of its hawkish peers globally.

The yen's renewed decline has stoked speculation that intervention by Japanese authorities could be imminent, particularly as the level of 145 per dollar first prompted them to shore up the yen in September.

Japan's Finance Minister Shunichi Suzuki on Friday warned against excessive yen weakening.

Read more: Japan finance minister vows to respond if yen weakening becomes excessive

"I don't think there's a huge line in the sand, because if the other major currencies of major trading partners also move in tandem, it doesn't make sense for them to intervene," said Saktiandi Supaat, Maybank's regional head of foreign exchange research and strategy.

"But of course, people will see 145 as the historical level."

Data on Friday showed core inflation in Tokyo perked up in June and remained above the BOJ's 2pc target for the 13th month.

The same day, official surveys showed China's factory activity declined for a third straight month in June and weakness in other sectors deepened, data which initially sent the yuan lower.

The onshore yuan fell to its lowest since November at 7.2615 per dollar shortly after trading opened on Friday, but was last marginally higher at 7.2505 per dollar.

Similarly, the offshore yuan rose nearly 0.1pc to 7.2631 per dollar, as investors took the weak data as a signal that Beijing would soon announce more support measures to shore up the country's fragile economic recovery.

"PMIs released... reinforced the need for stimulus support. We still expect some form of fiscal stimulus, but patience is needed," said Christopher Wong, a currency strategist at OCBC.

The Australian dollar, often used as a liquid proxy for the yuan, tracked the Chinese currency higher and rose 0.29pc to $0.6635.

The New Zealand dollar gained 0.46pc to $0.6097.

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The US dollar held near a two-week top and was on track to reverse two quarters of losses against six major peers, drawing support from bets that the U.S. Federal Reserve has further to go in raising interest rates to tame inflation.

The dollar index steadied at around 103.26 and was heading for a gain of over 0.6pc for the second quarter. The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, data on Thursday showed, while the Commerce Department the same day raised its estimate of first-quarter gross domestic product.

"The two economic data releases came in above market expectations and certainly reinforced the narrative of a resilient US economy," said currency strategist Carol Kong at Commonwealth Bank of Australia.

Sterling gained 0.16pc to $1.26315 and was headed for a monthly gain of over 1.5pc, as traders similarly price in more rate hikes from the Bank of England as Britain's inflation rate continues to run high.

The euro edged 0.09pc higher to $1.0872 and was set to gain roughly 1.7pc for the month against the backdrop of a still-hawkish European Central Bank.

Further clarity on the bloc's inflation outlook will come later on Friday, with June's flash inflation data due to be released.

"Even though there is still some tightening in the pipeline ... there will be an increasing emphasis on the time dimension of monetary policy," said Elwin de Groot, head of macro strategy at Rabobank.

"The bottom line is that in the US, the euro zone and the UK, policy hasn't been restrictive enough for long enough to see a real impact on core inflation."