The yen powered to a 17-month high against the dollar on Thursday, with the US currency under pressure after minutes of the Federal Reserve's meeting last month underscored its caution about future interest rate hikes. The yen's surge, up around 9.5 percent against the dollar this year despite the imposition of negative rates, led to more warnings of action from the Japanese, who are concerned about a strong currency dampening exports.
A senior Japanese finance ministry official said steps would be taken in the market as needed, and Bank of Japan Governor Haruhiko Kuroda also repeated the central bank would ease policy further if needed, but there are doubts over how effective that would be. The dollar fell 1.4 percent to 108.02 yen, its weakest against its Japanese counterpart since October 2014. The euro slid to 123.32 yen, its lowest in a month, with subdued stock markets also underpinning the safe-haven yen.
"We are in a broad-based soft dollar environment, and given the yen is cheap in relation to its long-term fundamentals, it is not surprising it is outperforming," said ING currency strategist Petr Krpata. "The rise is leading to speculation of intervention by the Japanese," Krpata added. "But we think the bar for that is pretty high and we are not seeing any major risk-off event." The market is sceptical about the chances of yen-selling intervention ahead of a G7 summit that Japan is hosting in May, analysts said.
"(Prime Minister Shinzo) Abe does not want to get into trouble at the G7 summit for the BOJ focussing too much on the yen," said Commerzbank currency analyst Anthe Praefcke. "Once the visitors have left, he or Kuroda can refer to 'disorderly movements' and 'excessive volatility' on the FX markets to their hearts content - the two tolerated exemptions for interventions - so as to be able to intervene to weaken the yen," Praefcke said.
The dollar index, which tracks it against a basket of six major currencies, fell to 94.015, its lowest since October 2015. It recovered to 94.414, still flat on the day. Traders will watch for comments from Fed chair Janet Yellen, who takes part in a panel discussion later in the day.
Minutes from the Fed's March 15-16 policy meeting suggested the central bank is unlikely to raise interest rates before June, due to widespread concern among policymakers over their limited ability to counter the blow of a global slowdown. The minutes showed debate over whether they might increase rates in April, with "a number" of them arguing that headwinds to growth would probably persist, and many urging caution about raising rates.
The euro was down 0.2 percent at $1.13805, not far from a 5-1/2 month high of $1.1438 touched last week. Minutes of the last European Central Bank meeting will be released on Thursday, with traders also looking to a speech later in the day by its president, Mario Draghi.
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