FOREX-Yen slips after report on Japanese PM's rate-hike reservations

By Niket Nishant and Rocky Swift

LONDON/TOKYO, Feb 24 (Reuters) - The yen weakened on Tuesday after a report said Japanese Prime Minister Sanae Takaichi had conveyed her reservations about further interest rate hikes to Bank of Japan Governor Kazuo Ueda, while China's yuan hit its highest in nearly three years.

The Japanese currency fell 0.72% to 155.72 per dollar JPY=, touching its lowest in two weeks. The report from The Mainichi Daily also sent Japanese government bond yields lower. JP/

The report injects fresh uncertainty into a complicated policy backdrop for the BOJ, which has been battling a weaker currency that has raised the costs of imported fuel and food.

Before the report, a majority of economists polled by Reuters had expected the BOJ to raise rates to 1% by end-June, while markets had priced in a roughly 70% chance of a hike by April.

"It puts to the test the view that a corner has been turned in the yen," said Kenneth Broux, head of corporate research, FX and rates at Societe Generale.

"If the government is lobbying the central bank, doubts again re-emerge over the independence of the central bank."

Takaichi reiterated in parliament that there are pluses and minuses to a weak currency.

China's export controls on Japanese companies also added to the pressure. The yen slipped more broadly, falling 0.7% to 183.52 per euro. EURJPY=

The currency has been on the radar of U.S. authorities. Nikkei reported that the New York Federal Reserve, acting on behalf of the U.S. Treasury Department, took the lead in conducting so-called rate checks last month to prop up Japan's currency without a request from Tokyo.

"It tells you that Japan is not overly concerned (about the yen), even though they have been intervening verbally to manage the pace of the slide in the yen," Broux said.

YUAN CLIMBS AFTER US SUPREME COURT RULING

The Supreme Court ruled on Friday that U.S. President Donald Trump's use of a 1977 emergency law to impose tariffs exceeded his authority.

On Tuesday, China's yuan CNY=CFXS rose to its strongest against the dollar since April 2023 as traders returning from a nine-day holiday bet that the ruling will bolster Chinese exports.

The currency was last trading 0.33% higher at 6.88 per dollar.

However, Trump invoked a different law and imposed a new levy on all imports hours later. An initial 10% U.S. tariff came into effect at a minute past midnight on Tuesday, according to a Customs notice.

It is unclear when Trump's promised increase to 15% might take effect. So far, Trump has only signed an executive order for the 10% tariff.

He also warned countries against retreating from recent trade deals after the Supreme Court struck down his emergency tariffs.

"Now we're back in a very uncertain environment," Ray Attrill, head of currency strategy at National Australia Bank, said on an NAB podcast.

"It's just the uncertainty about what the future trade landscape will look like, just at a point where most countries had signed or were on the cusp of signing trade deals."

The renewed trade uncertainties come as doubts creep into financial markets about the sustainability of massive investments in artificial intelligence and as Federal Reserve policymakers express concerns about elevated inflation.

Traders are also focused on rising geopolitical tensions. The State Department is pulling out non-essential government personnel and their eligible family members from the U.S. embassy in Beirut, a senior State Department official said on Monday, amid growing concerns about the risk of a military conflict with Iran.

The euro EUR=EBS was flat at $1.1780, while sterling was little changed at $1.3485 GBP=.

The European Parliament decided on Monday to postpone a vote on the European Union's trade deal with the U.S. due to the new import tax.

In cryptocurrencies, bitcoin BTC= fell 2.1% to $63,205.18, and ether ETH= declined 2% to $1,824.54.