By Karen Brettell
NEW YORK, Sept 3 (Reuters) - The yen jumped by 2% against the U.S. dollar on Thursday as traders ramped up bets on a Bank of Japan interest rate hike, while analysts pointed to BOJ data showing no official intervention behind the currency's strong gains on Wednesday.
The dollar, meanwhile, added to losses after Federal Reserve Governor Christopher Waller said that if upcoming data confirms that inflation pressures are cooling off, he is inclined to argue in favor of keeping interest
rates steady at the U.S. central bank's next policy meeting.
A sharp, sudden rise in the yen against the dollar on Wednesday fueled speculation that Japanese officials had intervened to shore up the currency, after gains from a historic U.S.-Japan action in late July began to fade.
But with no evidence of official action, analysts say the move instead reflects bets that the BOJ could raise rates by more than previously expected when it meets on September 17 and 18.
“BoJ daily account data released today indicated there was no USD selling / yen buying by the MoF on Wednesday. Reports from market participants also indicate there were no 'rate checks' by the MoF yesterday,” said Jeremy Stretch, chief international strategist at CIBC Capital Markets.
During a rate check, a government or central bank asks financial institutions to quote an exchange rate but does not buy or sell.
Hawkish comments from BOJ board member Hajime Takata were cited as a factor behind yen strength. Takata said on Wednesday the central bank should conduct interest rate hikes nimbly to counter intensifying inflationary pressures, rather than adhere to a fixed semiannual pace anticipated by markets.
Markets are now pricing in 75% odds of a 25-basis-point BOJ hike this month, with some traders speculating that an even larger increase is possible. An additional hike in October is also seen as a possibility, though not a likely one.
Market pricing “is too hawkish in our view. However, the continued market speculation over a faster pace of rate hikes means USD/JPY longs could still get squeezed in the coming days,” said Stretch.
The Japanese yen strengthened 1.99% to 155.6 per dollar. It is approaching the 155.21 level that was the yen high after the July intervention. If it surpasses this level it will be the strongest since May 6.
The Japanese currency has struggled to find fundamental support, coming under pressure from still-wide interest rate differentials, fiscal worries and a renewed spike in energy prices.
WAITING ON PAYROLLS
The dollar added to losses as traders pared bets on a September rate hike after comments from Waller.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.58% to 99.02, with the euro up 0.3% at $1.1622. Sterling strengthened 0.18% to $1.3508.
Traders are now pricing in 46% odds of a Fed rate hike this month, down from 59% before his comments. They had raised bets on a September hike after hawkish comments from Fed Chairman Kevin Warsh on Friday.
This week’s main U.S. economic release is U.S. jobs data on Friday, which is expected to show that employers added 56,000 jobs last month, according to the median estimate in a Reuters poll of economists. That would follow July's surprise drop of 23,000 jobs.
Consumer and producer price inflation reports for August are due next week.
Elsewhere, the Swiss franc strengthened after data showed a jump in inflation to 0.8% year-on-year, up from 0.4% in July, raising the possibility that the Swiss National Bank may raise interest rates away from zero.
Against the Swiss franc, the dollar weakened 0.71% to 0.807.
(Reporting by Karen Brettell, Rae Wee and Harry Robertson; Editing by Hugh Lawson)
