Yen weakens as policy divergence resurfaces before Jackson Hole

[TOKYO] The yen fell for a second day against the dollar after Federal Reserve officials indicated they are considering a rate hike this year, while Bank of Japan Governor Haruhiko Kuroda suggested he is open to increased easing as early as next month.

Japan's currency weakened against most of its major peers after Fed Vice Chairman Stanley Fischer signalled in a speech on Sunday that a 2016 rate hike is still under consideration, before Fed Chair Janet Yellen speaks Aug 26 in Jackson Hole, Wyoming.

Mr Kuroda said in an interview published Saturday in the Sankei newspaper that there is "sufficient chance" the BOJ will add to its unprecedented easing at next month's policy meeting. New Zealand's dollar was the biggest decliner versus the greenback among Group-of-10 peers.

"We expect the US dollar to consolidate this week with a modest upside bias," Elias Haddad, a senior foreign-exchange strategist at Commonwealth Bank of Australia in Sydney, wrote in a client note.

"There is room for US interest rate expectations to adjust a bit higher this week." The yen dropped 0.5 per cent to 100.72 against the US dollar as of 10:45 am in Tokyo, after declining to as low as 100.91.

The Japanese currency on Aug 19 completed its biggest weekly rally this month after reaching a seven-week high of 99.54.

The Bloomberg Dollar Spot Index, which measures the greenback against 10 leading global currencies, rose 0.4 per cent, after finishing a two-week slide on Friday. The kiwi shed 0.6 per cent to 72.28 US cents, while the Aussie fell 0.5 per cent to 75.91 US cents.

Mr Fischer said the US economy is already close to meeting the central bank's goals and that growth will gain steam. He spoke at the Aspen Institute in Aspen, Colorado.

The probability of a rate increase by the end of the year rose to 51 per cent on Aug 19 from 42 per cent a week earlier.

Mr Kuroda told the Sankei newspaper that the BOJ won't hesitate to act based on discussions on the results of a comprehensive review at its Sept 20-21 board meeting. The Nikkei 225 Stock Average climbed 0.2 per cent.

"The dollar may gain a bit further if Japanese stocks react positively to Kuroda," said Kumiko Ishikawa, a Tokyo-based analyst at Gaitame.com Research Institute Ltd.

"Some people may have bought the dollar on Fischer, but all eyes are on what the Fed Chair will say. The dollar may lead markets broadly but it's difficult to see the yen fall beyond 101."

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