Yen weakens on intervention threat; slowdown fears weigh on euro

THE yen fell on Monday (Jul 3) to near eight-month lows against the US dollar as investors said intervention was in sight, while the euro weakened after a slowdown in factory activity in China and the eurozone renewed economic growth fears.

The US dollar edged up ahead of the Jul 4 holiday after US economic data released last week showed slightly easing inflation and consumer spending.

The yen weakened 0.37 per cent to 144.86, after it touched its lowest level against the greenback since November on Friday. It lost 9 per cent against the US dollar in the first six months of the year, as investors kept a close eye on whether Japanese authorities would intervene in the currency market.

Finance Minister Shunichi Suzuki on Friday said Japan would take appropriate steps in response to excessive yen weakening, the latest of a series of comments from government ministers and officials.

“The yen is on intervention watch, and the next data focus is Japan’s May wage growth due Jul 7,” said Paul Mackel, global head of FX Research at HSBC.

Japan bought yen in September, its first foray in the market to boost its currency since 1998, after a Bank of Japan (BOJ) decision to maintain ultra-loose policy drove the yen as low as 145 per US dollar.

It intervened again in October, after the yen plunged to a 32-year low of 151.94. Still, Japanese business sentiment improved in the second quarter, as easing supply constraints and the removal of pandemic curbs lifted factory output and consumption.

Fears of a slowdown in the global economy have weighed on the euro, which started the third quarter down 0.1 per cent at US$1.0897, after rising for three consecutive quarters. A private sector survey showed on Monday that China’s factory activity growth slowed in June, with sentiment waning and recruitment cooling as firms grew increasingly concerned about sluggish market conditions.

Eurozone manufacturing activity contracted faster than initially thought in June, as persistent policy tightening by the European Central Bank squeezed finances, a survey showed on Monday, painting an increasingly gloomy outlook for industry.

“Investors have commented that the eurozone cyclical story is losing momentum, and this is why the euro should be lower,” HSBC’s Mackel said. He added that the euro is, however, holding up relatively well.

China’s onshore yuan steadied at 7.2494 after slipping to near eight-month lows against the US dollar at the end of last week, supported by the central bank’s intensified efforts to stabilise the much weakened local currency.

Investor focus this week will be on the minutes of the US Federal Reserve’s June meeting due on Wednesday.

The central bank decided to leave interest rates unchanged in its June meeting, but it hinted that borrowing costs may still need to rise by as much as half of a percentage point by the end of the year.

Economic data eased recession worries. Data on Friday showed cooler-than-expected inflation in May, while consumer spending abruptly decelerated.

“The US economy is not slowing as forecast,” Citi strategists said in a client note. “Surprisingly strong job growth is keeping labour markets tight while providing the nominal spending power to drive services consumption.” Markets are pricing in a 90 per cent chance of the Fed hiking rates by 25 basis points in its July meeting, CME FedWatch Tool showed.

Investor attention will also be on the Labor Department’s Job Openings and Labor Turnover Survey and monthly payrolls report due later this week that will help gauge the labour market in the US.

Against a basket of currencies, the US dollar rose 0.16 per cent to 103.11, after eking out a near 2 per cent gain in the first half of the year.