Yen weakens as Dudley stance shows jobs data no bar to Fed hike

[TOKYO] The yen weakened against the US dollar after traders' expectations of at least one Federal Reserve interest rate increase this year were kept intact despite a weaker-than- expected US jobs report.

The Japanese currency extended its drop against the greenback after losing 0.6 per cent last week as a gauge of the US currency posted its biggest weekly gain since November. Labour Department data Friday showed payrolls increased by 160,000 last month, versus estimates for a gain of 200,000 in a Bloomberg survey of economists, while average hourly earnings rose.

New York Fed President William Dudley said in a New York Times interview that it remained a "reasonable expectation" that the central bank would raise rates two times this year.

"The yen likely saw its peak against the dollar for the time being," said Koji Fukaya, the Tokyo-based chief executive officer at FPG Securities Co.

"The jobs report failed to add further momentum to speculators' already bullish yen positions. Unless US data falter, the yen lacks fresh incentives to climb."

The Japanese currency fell 0.2 per cent to 107.31 per US dollar as of 11:28 am in Tokyo. The Bloomberg Dollar Spot Index, which tracks the currency versus 10 peers, was little changed after rising 1.5 per cent last week, the most since the period ended Nov 6.

Yen Bulls

Bullish bets on the yen by hedge funds and other large speculators stood at 61,521 contracts in the week to May 3, near the high reached in the week ended April 19, the most in data going back to 1992, according to the Commodity Futures Trading Commission in Washington.

While the April US employment report was "a touch softer," it wouldn't affect his economic outlook, Mr Dudley said, according to the interview with the New York Times on Friday.

"The yen has more scope for losses against the dollar if Fed officials keep their hawkish tone," Masafumi Yamamoto, chief currency strategist in Tokyo at Mizuho Securities Co, wrote in a note to clients.

"Against the dollar, the yen seems to have priced in both positive and negative aspects of the jobs report."

BLOOMBERG