FOREX-Dollar hits fresh 9-1/2-month high versus yen, Japan fiscal policy, US data in focus

By Stefano Rebaudo and Gregor Stuart Hunter

Nov 18 (Reuters) - The dollar touched a fresh 9-1/2-month high against the yen before easing and edged down versus the euro on Tuesday, as investors worried about Japan’s fiscal stance and awaited U.S. data for signals on the Federal Reserve’s next move.

Global stocks sagged with the heaviest selling in tech-driven markets but the reaction in the forex market has been quite muted as of now.

The dollar index =USD, a measure of the U.S. currency against major rivals, was last flat at 99.52, after snapping a four-day losing streak on Monday.

Investors awaited U.S. economic data after the longest government shutdown on record, with the September jobs report expected on Thursday.

“This data is backward looking but remains very relevant,” said Paul Mackel, global head of forex research at HSBC.

“It captures the period when the FOMC resumed its easing cycle and follows the time when Chair Powell sounded dovish at Jackson Hole about U.S. labour market conditions,” he argued.

Fed Governor Christopher Waller continued to build the case for further rate cuts amid a broad policy dispute at the U.S. central bank, while Fed Vice Chair Philip Jefferson said the U.S. central bank needs to "proceed slowly".

Money markets have in recent days priced the chance of a 25-bp rate cut next month at around 50%, according to CME Group FedWatch tool. Chances on Monday were 49% from 60% a week ago.

The yen rebounded and was last at 155.05, up 0.15% on the day. JPY=EBS It hit earlier in the session 155.37, its lowest level since February 4.

While Bank of Japan Governor Kazuo Ueda has signalled the chance of raising interest rates as soon as next month, Prime Minister Sanae Takaichi has voiced displeasure over the idea and urged the BoJ to cooperate with government efforts to reflate the economy.

Barclays advised staying long on the U.S. dollar against the yen, saying Takaichi’s Abenomics-style policies are likely to keep pressure on the Japanese currency.

It lifted its dollar/yen target to 158.8, arguing that additional fiscal spending will swell Japan’s debt and raise the premium investors demand to hold the currency.

Analysts also flagged a growing risk of foreign-exchange intervention, which could slow the dollar’s climb, though they noted that recent verbal warnings from authorities do not point to imminent action.

Japanese Finance Minister Satsuki Katayama on Tuesday expressed concern over recent foreign exchange movements.

Japan must compile a stimulus of around 23 trillion yen, Goushi Kataoka, a private-sector member of a key government panel, told Reuters on Monday. That would far exceed the 17-trillion-yen package previously reported by the Nikkei newspaper, stoking fresh market anxiety over the supply of new government debt that bond markets would have to digest.

The yield curve for Japanese government bonds steepened further on concerns about the size of Takaichi's stimulus package, with 20-year yields reaching a 26-year high.

The euro was up 0.05% at $1.1596.

The Australian dollar AUD= was roughly unchanged at $0.6494 after minutes from the Reserve Bank of Australia's November 3-4 policy meeting showed the central bank judged the current cash rate of 3.6% as being slightly restrictive, but said it was possible this was no longer the case, citing a jump in housing credit to investors.