By Ankur Banerjee
SINGAPORE, June 30 (Reuters) - The yen was pinned at levels not seen since 1986 on Tuesday, stoking worries that a direct intervention from Tokyo was around the corner, while the dollar backed away from 13-month highs ahead of jobs data that could influence the U.S. rate outlook.
The yen weakened to 162.27 per dollar in early trading, a 40-year low, with focus turning to Tokyo's next steps.
The Japanese currency was set for a nearly 2% drop against the dollar for the second quarter,
its fourth straight quarter of decline, a run it last had in 2022 when it fell for seven consecutive quarters, as a wide interest rate difference drags the yen.
"It's a question of when, not if, the Ministry of Finance (MOF) intervenes again to support the yen," said Carol Kong, currency strategist at Commonwealth Bank of Australia.
"However, any intervention is unlikely to reverse the broader uptrend in USD/JPY. We forecast USD/JPY to keep rising to 164 by early 2027," Kong said.
The yen has broadly shrugged off bouts of interventions from Tokyo worth 11.7 trillion yen ($72.25 billion) and interest rate hikes from the Bank of Japan in the past few months as the Iran war stoked inflationary worries and derailed the global rates outlook.
Speculators have also been emboldened, steadily building back their net short position on the yen, with the latest weekly data from a U.S. regulator showing short positioning in the amount of $11.3 billion, near the highest in two years.
While the intervention in late April and early May strengthened the yen for a brief period, it was back under pressure as traders started to price in rate hikes from the U.S. Federal Reserve later this year.
That sharpens the focus on Thursday's U.S. jobs report for June as three consecutive months of stronger-than-expected payroll gains have supported the Fed's hawkish shift. Traders are pricing in a 63% chance of a rate hike by September.
"(Japan's) MOF will intervene if they can, but they can't, as they know they're currently swimming against the tide of a hawkish Fed," said Matt Simpson, senior market analyst at StoneX.
"But we did see them swing into action after a soft US inflation report in July 2024. So if US data throws a surprise gift for Fed doves this week, the MOF could burst into action with momentum of a weaker US dollar on their side," he said. "Until then, it's likely just talk."
The dollar index, which measures the U.S. currency against six other units, was at 101.6, after dropping 0.26% in the previous session, but is on course for a 1.3% rise in the second quarter.
The euro was at $1.14165, while sterling last bought $1.3251. The Australian dollar eased 0.15% to $0.6876 and the New Zealand dollar fetched $0.5647.
The U.S. payrolls report on Thursday is the main event on the economic front, with the data expected to show that employers added 110,000 jobs last month, while the unemployment rate held steady at 4.3%, according to a Reuters poll.
Investors were also assessing a slate of U.S. Supreme Court decisions including its decision to refuse to let President Donald Trump fire Fed Governor Lisa Cook, a move that helps ease some concerns over the Fed's independence under the Trump administration.
Meanwhile, Iranian and U.S. negotiating teams were due in Doha this week, but Iran said no meeting had been scheduled as weekend missile fire from both sides tested the interim ceasefire to end the four-month-old war, leaving sentiment fragile.
($1 = 161.9300 yen)
(Reporting by Ankur Banerjee in Singapore; Editing by Jamie Freed)
