SINGAPORE, Aug 14 (Reuters) - The yen headed for its biggest weekly loss in three months on Friday as the impact of U.S. and Japanese intervention faded, leaving traders to wager another round of official buying would be needed to stem the rot.
The currency has surrendered roughly half the gains sparked by intervention in late July and early August, falling about 1% this week to 159.43 per dollar. It was trading near 164 per dollar before July's intervention and traders see the 160 level as a potential
trigger for fresh official action.
The yen's retreat is set to be its biggest weekly drop since May, when it was also backsliding after a round of official buying. A fall of about 0.8% to 183.91 yen per euro this week is the largest since April.
The Japanese currency was stable early on Friday but has been falling for years, and was at near four-decade lows before the intervention, on a combination of perennially low interest rates and newer confidence concerns around government spending and funding.
The broader currency market has been fairly steady this week, with support for the dollar from higher oil prices and Middle East tension offset by benign U.S. jobs and inflation reports that reduced expectations for U.S. interest rate hikes.
Overnight figures showing unchanged U.S. producer prices in July further supported dialling back bets on a September hike, now seen as a roughly 35% chance.
The euro edged 0.2% lower to $1.1536 this week while sterling was flat at $1.3489. A surprisingly low inflation expectations reading knocked the New Zealand dollar on Thursday, but it bounced back as the swap market stuck with an 85% chance of a rate hike in September.
The Australian dollar hovered at $0.7060. [AUD/]
THE ONUS IS ON BOJ
Japan may conduct more joint yen intervention "at any time" and signal the chance of faster-than-expected interest rate hikes to stem further falls, Tokyo's former top currency diplomat Mitsuhiro Furusawa told Reuters in an interview.
Markets have already bet on the Bank of Japan raising rates further and sooner than previously expected after U.S. Treasury Secretary Scott Bessent said Japan should reinforce currency intervention with policies and fundamentals that underpin the yen.
"It's not much of a surprise that the yen has retraced," said OCBC strategist Sim Moh Siong.
"Because for the intervention to change the yen trend, we need to see a more hawkish BOJ stance, which the market is trying to price in, but at the same time, we need validation," he said. "The onus is on BOJ to step up."
Markets currently see a 76% chance of a BOJ hike in September, according to Tokyo Tanshi data, a dramatic increase compared with 24% on July 30, but one which also opens the door to yen falls if investors are disappointed.
China's yuan hovered at 6.7452 in offshore trade on Friday, not far from a 3-1/2-year high touched last week.
South Korea's won, which was also supported by official intervention as authorities sold dollars in concert with Japan last month, has held steadier than the yen though was set to notch a modest loss of 0.6% on the dollar this week.
"Interventions, to me, even if they're coordinated, even if they are quite powerful, are at best temporary, and at worst an invitation for the market to challenge them," said Omar Slim, co-head of Asia public fixed income at MetLife Investment Management.
(Reporting by Ankur Banerjee in Singapore and Reuters' Toyko markets team. Writing by Tom WestbrookEditing by Shri Navaratnam)
