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NEW YORK: The yen dropped to multi-year lows against the US dollar and euro on Tuesday, keeping investors on heightened intervention watch ahead of this week’s Bank of Japan meeting, while dovish policy maker comments left sterling near its weakest in months.

The euro reached 165.71 yen, its highest since 2008, after data showed business activity in the euro zone expanded at its fastest pace in nearly a year, primarily due to a recovery in services.

Europe’s common currency was last up 0.4% at 165.59 yen.

The dollar rose to 154.88 yen, its highest since 1990 and edging closer to 155, a level seen by many participants as the new trigger for intervention by Japanese authorities. The greenback was last flat on the day at 154.78 yen.

“Japan’s yen has failed to capitalize on fairly explicit intervention warnings from Finance Minister Shunichi Suzuki, suggesting that market participants expect no change in policy settings when the Bank of Japan meets later in the week,” said Karl Schamotta, chief market strategist, at Corpay in Toronto.

“If officials fail to lower asset purchases - currently running at around six trillion a month - rate differentials should remain yawningly wide, helping nullify any short term intervention efforts.” Japanese Finance Minister Shunichi Suzuki said last week’s meeting with his US and South Korean counterparts has laid the groundwork for Tokyo to act against excessive yen moves, the strongest warning to date on the chance of intervention.

However, there were doubts whether Tokyo would act so close to the BOJ’s two-day policy meeting that starts on Thursday.

Japan’s central bank was expected to project inflation would stay around its 2% target for the next three years in new forecasts due on Friday, signalling its readiness to cautiously raise interest rates again this year from near-zero levels.

“We’ve had jawboning now for a number of weeks, and they still haven’t come in and intervened directly ... So people are questioning what’s going to bring them to the table,” said Lee Hardman, senior currency strategist at MUFG.

The dollar did tick lower against the yen after data showed US business activity eased in April to a four-month low due to weaker demand.

S&P Global said on Tuesday its flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, fell to 50.9 this month from 52.1 in March. A reading above 50 indicates expansion in the private sector.

The dollar index also dropped after the PMI data, down 0.4% at 105.68.

The euro climbed to a two-week high against the dollar of $1.0711, before drifting back to trade at $1.0708, up 0.5%.

The pound had fallen to a five-month low of $1.2299 against the dollar on Monday, but recovered on Tuesday to $1.2439, up 0.7% after strong British business activity data.

Investors will have another chance to assess the strength of the US economy this week, with first-quarter gross domestic product data on Thursday and personal consumption price expenditures (PCE) index, the Fed’s preferred measure of inflation, on Friday.

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