Written by Brigid Riley
TOKYO (Reuters) – The dollar was mostly steady on Thursday as traders put money aside ahead of next week's U.S. inflation data and its possible implications for Federal Reserve policy. However, the hawkish opinions of Bank of Japan members helped slow the pace of the yen's decline.
The dollar has been slowly rising against the Japanese yen in recent days after falling more than 3% last week, marking the biggest weekly decline since early December 2022.
However, a summary of the Bank of Japan's opinions released on Thursday showed that many board members were overwhelmingly hawkish, calling for steady interest rate hikes, giving the yen some support.
“The Bank of Japan seems to be hinting at the next rate hike, which could happen in June or July when the final results of wage negotiations are known,” said Charu Chanana, head of currency strategy at Saxo.
However, the yen's sharp rise was short-lived, and the market was clearly bearish on the yen.
Last week's Fed policy meeting and forecasts for lower U.S. job growth have increased market expectations for two rate cuts this year. However, there remains a gap between ultra-low yields in Japan and ultra-low yields in the United States.
Masafumi Yamamoto, chief foreign exchange strategist at Mizuho Securities, said, “The market is not too worried about the Fed's sudden change.In that sense, the market is biased towards the upside of the dollar/yen pair.''
However, traders remain wary of possible currency intervention by Tokyo, and dollar/yen is likely to remain in the 155-160 yen range, he added.
Market watchers suspect the Japanese government has spent about $60 billion to stem the yen's decline, which hit a 34-year low against the dollar last week at around 160 yen.
Japan's top currency diplomat, Masato Kanda, warned again on Thursday that the Japanese government is ready to take action on currency markets.
The Japanese yen was almost unchanged at 155.57 yen to the dollar.
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Market focus will soon turn to next week's release of the U.S. Producer Price Index (PPI) and Consumer Price Index (CPI) for April, with traders predicting inflation will fall toward the Fed's 2% target rate. We will be watching closely for signs that the trend is resuming.
“This is a make-or-break report for the Fed, as another report that challenges the disinflation theory could jeopardize its credibility,” Saxo's Chanana said.
Boston Fed President Susan Collins said last night that the US economy needs to cool down to get inflation back on target.
The dollar index, which measures the dollar's value against a basket of currencies, was unchanged at 105.51.
Sterling was steady at $1.24975 ahead of the Bank of England's policy decision later on Thursday.
With inflation declining, the BoE is likely to take another step toward lowering interest rates for the first time in four years.
The big question for investors is whether the BoE is signaling that a rate cut could come in June, when the European Central Bank has already signaled it will cut borrowing costs.
The euro remained at $1.0748.
Elsewhere, China's offshore yuan edged higher at 7.2257 yuan, after data showed that China's imports and exports returned to growth in April after contracting in the previous month.
This could mean that interest rate cuts, which some believed were necessary for China to meet its 2024 GDP target, could be delayed.
Among cryptocurrencies, Bitcoin was last up 0.09% to $61,618.12.
(Reporting by Brigid Riley; Editing by Sam Holmes and Sri Navaratnam)