By Amanda Cooper
LONDON, June 5 (Reuters) - The Japanese yen tested the 160-per-dollar barrier on Friday, drawing sharp official warnings, as the dollar held firm ahead of key U.S. employment data and Middle East tensions underpinned safe-haven demand.
Peace talks between the U.S. and Iran are at a stalemate, and a reignition of hostilities this week has kept oil above $90 a barrel, raising risks to global growth.
The yen headed for a fourth straight weekly loss against the dollar, having unwound gains from
official buying in late April and early May. By Friday, it was pressing the 160-per-dollar mark that has triggered intervention in the past, prompting another warning from Finance Minister Satsuki Katayama, who said Japan was ready to respond at any time and reserved the right to take "decisive action" against excessive volatility. The yen was last at 159.93 per dollar.
"Markets are probably a bit reluctant to try to test the BOJ too much" ahead of the U.S. nonfarm payrolls report later Friday, as authorities have shown renewed willingness to intervene, said Khoon Goh, head of Asia research at ANZ.
Despite the risk of intervention, investors have built the largest bearish yen position since July 2024 in recent weeks. Without a meaningful shift in the outlook for rates and economic growth in Japan, analysts say there is little incentive to unravel those holdings, currently worth nearly $9 billion, according to LSEG data.
The Bank of Japan is widely expected to raise interest rates this month, as rising energy import costs add to price pressures. Money markets also point to a second hike by year-end.
GULF HOSTILITIES SUPPORT DOLLAR DEMAND
The dollar has been the stand-out in foreign exchange this week, rising about 0.4% against a basket of major currencies and around 1.3% over the past month. It has been supported by strong U.S. data, expectations for Federal Reserve rate hikes and safe-haven demand amid concerns about the impact of higher energy prices on importers such as the euro zone, Japan and China.
Citi's U.S. economic surprise index has hit a three-year high as data on employment, consumer spending and business activity have beaten forecasts, reviving the "American exceptionalism" narrative. U.S. 10-year Treasury yields have risen 50 basis points since the start of the Iran war, more than those of any other major economy, except Britain where yields are up 66 bps.
"The U.S. is still providing positive economic surprises ... with two-year yields north of 4%, you end up with a scenario where suddenly the conditions for the dollar remain reasonably supportive. And conversely, from a euro perspective, the perpetuation of elevated energy prices remains a drag on activity there," CIBC Capital Markets head of G10 FX, Jeremy Stretch, said.
The euro, down 1% over the past month despite expectations of up to three European Central Bank rate hikes this year, was up 0.2% on Friday at $1.1634. The pound edged up to $1.345.
Markets now await U.S. nonfarm payrolls later in the day. A Reuters poll forecast an 85,000 rise in jobs in May after a 115,000 increase in April, with the unemployment rate seen steady at 4.3%.
(Additional reporting by Jiaxing Li in Hong Kong. Editing by Thomas Derpinghaus and Mark Potter)
