© Reuters. A trader counts U.S. dollar banknotes at a currency exchange booth in Peshawar, Pakistan September 15, 2021. REUTERS/Fayaz Aziz

By Ankur Banerjee and Alun John

SINGAPORE/LONDON (Reuters) – The yen was under pressure against most other major currencies on Wednesday, even as Japanese authorities said they could intervene to prop it up, while the Australian dollar dropped after data showed inflation eased in May.

Market expectations that the Bank of Japan (BOJ) will keep interest rates ultra-low, while other central banks tighten monetary policy to curb inflation, has been weighing on the Japanese currency, driving speculation about whether and when authorities might step in to stem its declines.

“We are closely watching currency moves with a strong sense of urgency,” Japan’s top currency diplomat Masato Kanda told reporters on Wednesday.

“We will respond appropriately if it becomes excessive.”

The U.S. dollar rose to 144.26 yen on Wednesday, a fresh seven-month high, while the euro climbed to a 15-year high of 157.98 yen.

“It’s similar to late last year when the yen was starting to weaken more sharply and then Japanese officials eventually intervened to provide support,” said Lee Hardman, senior FX analyst at MUFG.

He said whether the yen would continue to weaken forcing intervention would depend on whether markets continued to price in higher rates elsewhere, which would require more evidence of resilient economies and sticky inflation, though this was not MUFG’s base case.

Japan made forays into the currency market to prop up the yen last September and October to stem a plunge in the currency, which hit a 32-year low of 151.94 to the dollar.

Meanwhile, the Australian dollar fell to a three-week low of $0.6618 after the local consumer price inflation rate slowed to a 13-month low in May.

It was last down 0.78% at $0.6634, and the neighbouring New Zealand dollar fell 1.17% to $0.6090, its biggest daily fall in a month.

A measure of core inflation in Australia also cooled, in a sign interest rates might not have to rise again in July.

In Europe, the euro dipped a fraction against the dollar to $1.0950, while the pound fell more sharply, dropping 0.46% to $1.26895, as traders took profit after a recent strong rally. [GBP/]

Traders are also watching the ongoing European Central Bank’s (ECB) conference on central banking for any hints from policymakers about the future rate hike path.

U.S. Federal Reserve chair Jerome Powell will participate in a panel later on Wednesday alongside Bank of England Governor Andrew Bailey, ECB President Christine Lagarde and BOJ Governor Kazuo Ueda.


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