The dollar eased from a two-month high on Wednesday as the yen extended its rebound, with USD/JPY falling 0.3% to 156.77 after Japanese officials renewed warnings against currency weakness. The move came ahead of key U.S. inflation and labor-market data due later this week.
The USD/JPY pair fell 0.3% to 156.77 on Wednesday, extending the yen's rebound from its recent slide. The U.S. dollar index eased 0.2% to around 101.22, holding near its recent two-month high.
Tokyo's warnings drive the yen's rebound
The yen was the best-performing Group-of-10 currency on Wednesday after Japanese officials stepped up warnings over excessive depreciation. Japan's top currency official, Atsushi Mimura, told Reuters that Prime Minister Sanae Takaichi and Finance Minister Satsuki Katayama, together with the U.S., had sent a clear warning about yen weakness.
However, weaker-than-expected August retail sales and an unexpected drop in industrial output could temper bets on faster Bank of Japan tightening, even as intervention risk remains a key support for the currency. The BOJ's July meeting minutes showed policymakers believed underlying inflation was approaching the 2% target and that continued rate increases were appropriate while financial conditions stayed accommodative.
Dollar's rally faces this week's Fed test
The dollar is heading for its strongest monthly performance since June, lifted by higher U.S. Treasury yields and expectations for further Federal Reserve tightening after the Fed's renewed focus on containing inflation. It has risen about 2% against the yen this month and nearly 3.8% in the third quarter.
Yet New York Fed President John Williams said "no need for urgency" on another rate increase, a comment that knocked expectations for an October hike down to about 50% from 71% previously. The Fed's preferred core PCE inflation measure is due later Wednesday, while Friday's nonfarm payrolls report remains the bigger near-term test for the dollar and rate expectations.
Source: Investing.com
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