The yen weakened for a third day running on Thursday but was still close to a recent 18-month peak, with investors unconvinced by a signal from Japan's prime minister that it could step in to weaken the currency.
Most moves in the foreign exchange market were muted as investors waited for Friday's key U.S. payrolls report - among the most closely watched sets of monthly data - for direction and clues on when U.S. interest rates are likely to increase. The Swiss franc hit an eight-week low against the euro as investors regained a small amount of risk appetite, while the yen, also traditionally used as a safe haven, fell 0.2 percent against the dollar. "FX markets are in a slight risk-on bias...but I would not read too much into it because equity markets have done basically nothing and we're waiting for data tomorrow," said currency strategist Stephen Gallo at BMO Capital Markets in London.
The yen has gained more than 15 percent against the dollar over the past six months, amid market turbulence and as investor expectations for a steady increase in U.S. interest rates have failed to materialize. Prime Minister Shinzo Abe said on Wednesday that Japan was watching the yen's movements and would act if necessary, but market players generally believe the intervention bar is high.
A U.S. Treasury report on Friday said "persistent one-sided" intervention by countries to weaken their currencies could see countries with big trade surpluses, such as Japan, classified as manipulators -- the latest sign that U.S. officials are not comfortable with more dollar gains. Having hit a 18-month low of 105.55 yen earlier in the week, the dollar edged up 0.1 percent to 107.14 on Thursday. Japanese financial markets will reopen on Friday after shutting for the Golden Week holiday. In London, BNP Paribas currency strategist Sam Lynton-Brown said a recent announcement that Japan's government pension fund was hedging some of its dollar and euro exposure was significant. The possibility of currency intervention by Japanese authorities would be likely to rise if the dollar were to fall to 100 yen, said Tan Teck Leng, FX strategist for UBS Wealth Management in Singapore. The euro fell half a percent to $1.1426, helping the dollar index climb half a percent and pull away from a 16-month low hit at the start of the week.
About the author
Research Associate at Center for Islam and Global Affairs (CIGA) at Istanbul Sabahattin Zaim University