FOREX-Yen strengthens after Japan warns of possible intervention

By Karen Brettell

NEW YORK, Jan 16 (Reuters) - The yen rose on Friday after Japan's Finance Minister Satsuki Katayama said Tokyo would not rule out any options to counter weakness in the currency, including coordinated intervention with the U.S.

The Japanese currency weakened to an 18-month low against the dollar on Wednesday on concerns that Japanese Prime Minister Sanae Takaichi will have more leeway to introduce fiscally expansionist policies.

Takaichi plans to dissolve parliament next week and call a snap parliamentary election, the secretary general of her party said on Wednesday, as she seeks public backing for her spending plans.

“That's probably the key factor orchestrating the extension of the Takaichi trade and the new dollar/yen highs,” said Vassili Serebriakov, an FX and macro strategist at UBS. But “we have to weigh the upside in dollar/yen against risks of FX intervention.”

Katayama said she shared the view with U.S. Treasury Secretary Scott Bessent that recent currency moves have been excessive, when they met in Washington on Monday.

The yen JPY= was last up 0.41% against the greenback at 157.98 per dollar.

Serebriakov sees an intervention as more likely in the 160-162 area.

Noah Buffam, director in FICC strategy at CIBC Capital Markets, also sees potential for the yen to continue to weaken, noting that Japanese officials are not yet showing full urgency in their warnings.

Some Bank of Japan policymakers also see scope to raise interest rates sooner than markets expect with April a distinct possibility, as a sliding yen risks adding to already broadening inflationary pressure, four sources familiar with its thinking said.

DOLLAR NEAR SIX-WEEK HIGH

The dollar ebbed against the euro on Friday, after reaching a six-week high on Thursday.

The greenback has been boosted by data showing an improving U.S. labor market, which has pushed back expectations of further Federal Reserve rate cuts until June.

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.12% to 99.23, with the euro EUR= up 0.1% at $1.1618.

The U.S. currency could face weakness this year on expectations that other central banks hike rates, said Buffam, noting that this could support the Australian, New Zealand and Canadian dollars.

Fed funds futures traders are pricing in 39 basis points of hikes in Australia this year, for example, compared to 47 basis points of cuts by the Fed.

The Australian currency is also being supported by strength in the Chinese yuan, said Serebriakov.

The Australian dollar is linked to China due to Australia's commodity exports to the country and the Aussie is often seen as a proxy for Chinese growth.

In cryptocurrencies, bitcoin BTC= fell 0.32% to $95,240.