NEW YORK: The yen sank to a fresh 38-year low against the US dollar and a record trough versus the euro on Wednesday, as the Japanese unit continued its downward spiral, with market participants on high alert for Japan intervention to boost the currency.

The dollar, on the other hand, fell after a slew of softer-than-expected US economic data that added to expectations that the Federal Reserve will likely start cutting interest rates later this year.

It declined after data showed that US private payrolls rose slightly less than expected in June and initial jobless claims increased, both consistent with slowing labor market momentum.

A report indicating that the US services sector contracted last month also weighed on the dollar.

With the greenback on the defensive, the euro remained resilient, helped by a stubbornly high inflation reading on Tuesday that suggested the European Central Bank would take its time before cutting interest rates again. Sterling was steady ahead of Thursday’s UK election.

Ahead of the July 4th holiday in the United States, the yen remained the main focus as it fell to 161.96 per dollar for the first time since December 1986. The dollar was last down 0.2% at 161.08, after falling to a session low below 161 following weak US data.

The yen also hit an all-time low of 174.48 against the euro. The euro was last up 0.4% at 174.13 yen.

“The BOJ (Bank of Japan) might actually have to wait until the Fed cuts interest rates and adopt a sort of ‘benign neglect’ policy,” said Helen Given, FX trader, at Monex USA in Washington.

“US yields are simply still too high for an intervention to take hold - it’s going to take a catalyst on the US dollar side to bring them lower and that could come from the Fed. There were also whispers that Japan may have to finance another intervention through sales of US Treasuries, so I’ll be paying attention to both sales and yields for any sharp movements,” she added.

Japanese authorities have been largely quiet on the yen this week, with Finance Minister Shunichi Suzuki only commenting on Tuesday that moves were being watched vigilantly. He refrained from repeating the oft-used warning that the ministry stood ready to act.

Wednesday’s data overall depicted a US economy that is slowing down.

Initial applications for US unemployment benefits increased last week, while the number of people on jobless rolls rose further to a 2-1/2 year high towards the end of June. Jobless claims rose to a seasonally adjusted 238,000 for the week ended June 29.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased to a seasonally adjusted 1.858 million in the week ending June 22, the highest level since late November 2021.

Separately on Wednesday, the ADP Employment report showed private payrolls increased by 150,000 jobs in June after rising 157,000 May. Economists polled by Reuters had forecast private employment increasing by 160,000.

“Altogether this is negative news for the dollar, suggesting...signs of a reversal in the labor market trend, bringing a rate cut closer,” wrote Alex Kuptsikevich, senior market analyst, at FxPro in emailed comments.