Yen under pressure after Takaichi report; Aussie higher on inflation

SINGAPORE: A wobbly yen was pinned near a two-week low on Wednesday after a report that Prime Minister Sanae Takaichi had told the central bank chief she had reservations about future rate hikes, while a steadily rising Chinese yuan kept pressure on the dollar.

Traders had an eye on President Donald Trump’s State of the Union address in the Asia morning. The Australian dollar rose 0.3% to $0.7074 after a pickup in inflation raised the risk of rate hikes - the sharpest gainer in an otherwise steady start to the session.

The euro hovered at $1.1776 and sterling sat at $1.35. The yen dropped 0.8% overnight to as weak as 156.28 to the dollar and was a fraction stronger than that at 155.88.

Takaichi voiced concerns about additional interest rate hikes during her meeting with Bank of Japan Governor Kazuo Ueda last week, the Mainichi daily reported on Tuesday, citing multiple unnamed sources.

If true, the report signals potential friction over monetary policy that could complicate the BOJ’s plan to steadily raise rates and rekindle currency market concerns that Takaichi wants to run the economy hot with low interest rates and high government spending.

“Her ‘tougher stance’ was a surprise and adds to concerns about FX weakness and policy shifts being market-unfriendly,” said Bob Savage, head of markets macro strategy at BNY.

“Intervention in tandem with the U.S. remains a brake against the 160 mark for JPY and against greater volatility,” he said.

Separately, the Nikkei newspaper said on Tuesday the U.S. had led so-called “rate checks” in January that propped up the yen, raising some doubt over how deeply Japan is committed to shoring up its currency.

The yen has been sliding for years thanks to Japan’s low interest rates and has been under pressure since Takaichi came to power in October on concerns that she would further strain a stretched national budget.

Elsewhere the New Zealand dollar inched higher to $0.5971, while China’s yuan stood tall, having notched its sharpest one-day rise in nine months of 0.35% on Tuesday.

The U.S. Supreme Court’s striking down of many of President Donald Trump’s heaviest tariffs would likely lead to a lower overall rate on Chinese goods, analysts said, paving the way for further yuan appreciation.

The yuan, which has gained nearly 7% in ten months, hit 6.8766 to the dollar on Tuesday - its highest in almost three years, and held at 6.8778 in offshore trade .

“The fundamental underpinnings for our CNY appreciation view - a starting point of deep currency undervaluation and the remarkable strength of the export sector - remain very much in place,” said analysts at Goldman Sachs.

“While uncertainties remain, we believe the likelihood of President Trump imposing additional Section 301 tariffs on Chinese products is low ahead of his planned visit to China at the end of March.”