By Tom Westbrook
SINGAPORE (Reuters) -The dollar was riding high on Thursday after Fed minutes made a December U.S. rate cut seem less likely, and its strong gains against the yen prompted traders to ask whether Japanese authorities may step in to stop their currency sliding further.
The dollar rose as high as 157.78 yen towards the end of the Asia session, its strongest since January. The yen’s latest decline began after Finance Minister Satsuki Katayama said there had been no specific discussion about foreign exchange at a meeting with Bank of Japan Governor Kazuo Ueda.
The yen managed to find some stability as European trading got underway, with the dollar up 0.1% at 157.36 yen. But Japan’s currency has still depreciated by around 6% since Prime Minister Sanae Takaichi was elected leader of the ruling party last month.
That move has come in spite of rising Japanese bond yields, as markets are uneasy about the scale of borrowing needed to fund Takaichi’s stimulus plans.
“You must either believe that there’s a ‘Sell Japan’ narrative going on, or you take the view that these relationships are no longer stable,” said Vishnu Varathan, Mizuho’s head of research in Asia, referring to how the yen has fallen even while the U.S.-Japan interest rate gap has narrowed.
Having sunk past 157 per dollar to near where it began the year, traders now figure Japanese authorities may intervene somewhere around the 160 mark, or if there are any more sudden moves. Chief Cabinet Secretary Minoru Kihara said moves were sharp, one-sided and concerning on Thursday.
FED MINUTES SUGGEST DECEMBER RATE CUT IS UNLIKELY
Beyond Japan, the euro, the Swiss franc, the Australian dollar and sterling all fell against the dollar after minutes from October’s Federal Reserve meeting showed “many” participants had already ruled out a December cut, while “several” saw a December cut as likely.
“In Fedspeak, ‘many’ means more than ‘several’, so I think there’s a bit of a hawkish message that’s supporting the dollar,” said Bank of Singapore strategist Moh Siong Sim.
In the U.S., expectations for a December cut have fallen below 25%, after being priced as a near-certainty a month ago.
The euro was last down 0.2% at $1.1515 a two-week low, while sterling was steady on the day at $1.3060, but also at its lowest since early this month.
That left the dollar index, which tracks the currency against major peers, at 100.26, testing a six-month high hit in early November. The index gained 0.5% on Wednesday after the Fed minutes.
The next key data point for the Federal Reserve, and in turn the dollar, is September’s nonfarm payrolls data. The numbers will be released at 8.30 a.m. ET (1330 GMT) after having been delayed by the U.S. government shutdown.
Because they are several months out of date, the question for investors will be whether the number is sufficiently surprising to offset its staleness.
The Swiss franc also hit a 10-day low of 0.8072 per dollar. As well as being hurt by the stronger dollar, it also suffered as tech behemoth Nvidia’s stock market-boosting results nudged investors out of the safe haven currency.
(Reporting by Tom Westbrook in Singapore, and Alun John in London; Editing by Tom Hogue, Jamie Freed and Gareth Jones)
