Yen firms on policymaker meeting, dollar up after debt deal

The yen strengthened on Tuesday on news of a meeting of Japan's finance ministry and central bank, while elsewhere the dollar rose to a two-month high against a basket of its peers after the US debt ceiling deal.

The dollar was last down 0.18 percent against the Japanese yen at 140.18 after the country's finance ministry said senior officials from the Ministry of Finance, Bank of Japan and Financial Services Agency will meet from 5:30 p.m. (0830 GMT).

 

The US currency had hit a six-month high of 140.93 yen before the announcement.

Japanese central bank policy has been a major focus for investors in the past year after the BOJ last year intervened to strengthen the yen. This year the focus has been on whether and when it will change its ultra-loose monetary policy stance.

Kenneth Broux, head of corporate research for FX and rates at Societe Generale, said FX intervention at current levels was unlikely.

 

"I think the barrier is higher for active dollar sales," he said. "This is the start, trying to slow the speed (of yen weakness)."

Jane Foley, head of FX strategy at Rabobank, also said the meeting was unlikely to bring about a change in policy, "but it may bring a change in temperature with regard to policy".

She said the BOJ's July meeting was one to watch for the outlook for developments concerning the Bank of Japan's yield curve control policy.

Elsewhere the dollar index , which measures the US currency against six major peers, rose 0.2 percent to 104.51, its highest in 10 weeks.

"It seems to be win-win on almost any scenario for the dollar right now," said Foley.

"Last week the dollar was gaining on safe-haven demand in case the US defaults, this week you can say the dollar is gaining because the US isn’t going to default. It tells you there is demand for the US dollar."

 

She said attention was turning to whether the US Federal Reserve can hike interest rates again, maybe not in June but possibly in July.

That, alongside a rethinking of market positioning - people had been dumping a lot of long dollar positioning since the end of last year - was supporting the dollar, she said.

President Joe Biden and Republican House Speaker Kevin McCarthy on Sunday signed off on an agreement to temporarily suspend the US debt ceiling and cap some federal spending in order to prevent a debt default.

However a handful of hard-right Republican lawmakers said on Monday they would oppose a deal to raise the United States' $31.4 trillion debt ceiling, highlighting risks to it passing Congress before the limit is reached, likely by next Monday.

The euro was down 0.28 percent at $1.0674, , while the pound dropped 0.13 percent to $1.2345 .

Elsewhere, China's onshore yuan eased to as soft as 7.0995 per dollar after China's central bank set the fixing at the yuan's weakest level since December. The offshore yuan also weakened past a key level of 7.1 per dollar.

The Turkish lira slipped further and weakened to a record low after President Tayyip Erdogan secured victory in the country's presidential election on Sunday.