Yen slides to fresh lows, market 'challenges' Japan authorities to act By Reuters

By Kevin Buckland and Amanda Cooper

TOKYO/LONDON (Reuters) -The yen traded at fresh 38-year lows against the dollar and a record trough against the euro on Wednesday, as the currency continued its downward grind, with Japanese officials largely remaining on the sidelines amid the risk of intervention.

The dollar edged lower against a basket of currencies, extending Tuesday’s decline after dovish comments from Federal Reserve Chair Jerome Powell overshadowed a robust domestic jobs report.

The euro remained resilient, helped by a stubbornly high local inflation reading on Tuesday that suggested the European Central Bank would take its time before cutting interest rates again. Sterling was steady ahead of Thursday’s UK election.

The yen weakened by as much as 0.3% to 161.96 per dollar for the first time since December 1986. It also hit an all-time low of 173.80 against the euro.

Japanese authorities have been largely quiet on the yen this week, with Finance Minister Shunichi Suzuki only commenting on Tuesday that moves were being watched vigilantly. He refrained from repeating the oft-used warning that the ministry stood ready to act.

Atsushi Mimura is taking over as the ministry of finance’s currency czar at the end of this month, replacing Masato Kanda, who oversaw the 9.8 trillion yen ($60.67 billion) round of intervention spanning several days in late April and early May, when the currency plunged to 160.82 per dollar.

“Right now, the FX market is challenging the Japanese authorities to do something. You do get the sense that markets will keep pushing dollar/yen higher until Japan policymakers respond,” said Michelle Metcalfe, head of macro strategy at State Street (NYSE:) Global Advisors.

Some speculated that the Japanese authorities could act on Thursday, when thin liquidity due to a U.S. holiday would exacerbate market moves.

Analysts have also pointed to the increased possibility of a second Donald Trump presidency as having an impact on the yen, because Trump’s policies are seen as likely to lead to higher U.S. bond yields, which the dollar-yen pair tends to track.

“A Trump presidency would likely bring higher fiscal deficits, inflation and yields at the mid- to long-end of the U.S. rate curve, countering the impact of Fed rate cuts,” and the rising risks of that have moved the goalposts higher for ,” said Tony Sycamore, a markets analyst at IG.

The , which measures the currency against the euro, sterling, yen and three other major peers, eased 0.1% to 105.59, dipping after data showed the private sector created 10,000 fewer jobs than expected in June.

The Fed’s Powell said at a European Central Bank conference in Sintra, Portugal, on Tuesday that the U.S. economy has made significant progress on inflation, even as he added that more supportive data is needed to start cutting interest rates.

U.S. data overnight showed job openings had increased in May after posting outsized declines in the prior two months. The closely watched monthly payrolls report is due on Friday.

Euro zone inflation eased last month, but a crucial services component remained stubbornly high, fuelling concerns that domestic price pressures could stay at elevated levels.

The euro rose 0.17% to $1.0765.

Sterling rallied 0.2% to $1.2715, after rising 0.28% on Tuesday.

The opposition Labour party is widely expected to win in Thursday’s poll, ending 14 years of Conservative government. Britain’s tight finances mean any new government will have little room to increase spending, potentially removing a catalyst of sterling weakness and keeping volatility contained.

Elsewhere, the Australian dollar rose 0.1% to $0.6675, helped by better-than-estimated retail sales data, which kept the risk alive of another Reserve Bank rate hike.

slipped to an eight-month trough in offshore trading amid signs that local authorities are willing to tolerate the currency’s decline. It was also given a nudge by the lowest reading since October for the Caixin/S&P Global services purchasing managers’ index (PMI).

The yuan finished the onshore session at 7.2734 per dollar, marking its weakest close since Nov 14, a whisker above the lower end of the daily trading band at 7.2738.