SINGAPORE, Aug 14 (Reuters) - The yen headed for its biggest weekly loss in about a month on Friday as the impact of U.S. and Japanese intervention faded, leaving traders to wager that either rate hikes or another round of official buying would be needed to stem the decline.
The currency has surrendered roughly half the gains sparked by intervention in late July and early August, falling about 0.9% this week to 159.15 per dollar.
It was trading at 40-year lows near 164 per dollar before July's intervention
and traders see the 160 level as a potential trigger for fresh official action.
Its retreat mirrors a similar selloff in May, when it also fell back after a round of official buying.
"It will be interesting to see whether the yen bears test the limits of intervention in the coming days, or whether policymakers in Tokyo and Washington will look to jump back into the market on a pre-emptive basis," said Mark Dowding, CIO for fixed income at RBC BlueBay Asset Management, in a weekly note.
"Within Japan, it seems that it is becoming increasingly apparent that the (Bank of Japan) will need to be permitted to hike rates at its September meeting, accelerating the path of monetary policy normalisation, in order to stymie further pressure ahead.
The Japanese currency strengthened in Friday trade after Reuters reported the Bank of Japan is set to raise rates as soon as September and is considering more aggressive hikes to follow, citing three people familiar with policymakers' thinking.
Since exiting a massive, decade-long stimulus in 2024, the BOJ has raised interest rates at a pace of roughly twice a year.
The broader currency market has been fairly steady this week, with support for the dollar from inflows to U.S. tech stocks as well as 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.
Thursday figures showing unchanged U.S. producer prices in July further supported dialing back bets on a September hike, now seen as a roughly 35% chance, and sent short-dated Treasury yields lower.
The euro nudged up 0.3% on Friday to $1.1563 though it is flat on the week. Sterling similarly gained 0.3% to $1.3537, also slightly stronger on the week, helped at the margin by Thursday's stronger-than-expected GDP data.
"The ongoing decline in short-term US rates has been providing a headwind for the US dollar performance this month but has not yet been sufficient to trigger another leg lower after the sell-off at the end of last month," said Lee Hardman, senior currency analyst at MUFG.
"The price action suggests that the U.S. dollar could be deriving support from inflows into the U.S. equity market in particular AI-related stocks."
Elsewhere the Swiss franc continued to lose ground on the euro. The common currency briefly nudged to about 0.94 francs, its highest since August 2025, and was last up 0.16% on the day.
The franc could be weakening, as yen intervention fears push traders to fund currency trades out of the low-yielding franc instead of the yen.
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 kiwi was up 0.6% at $0.5887.
(Reporting by Ankur Banerjee in Singapore and Reuters' Toyko markets team; Writing by Tom Westbrook; Editing by Shri Navaratnam, Jacqueline Wong, William Maclean)
