By Ankur Banerjee and Alun John
SINGAPORE/LONDON, Aug 11 (Reuters) - The yen hovered close to the key 160-per-dollar level on Tuesday, as the impact of U.S.-Japan intervention continued to fade, while the Australian dollar held near an eight-week high after the central bank left rates unchanged as expected.
The Japanese currency was last at 159.20 per dollar. It weakened 0.9% on Monday, moving further away from the three-month high of 155.20 reached last week after the rare U.S.-Japan yen-buying intervention
at the end of July.
The intervention came after the yen sank to a 40-year low of 163.99 per dollar. It has since surrendered nearly half of those gains, leaving traders betting it is a matter of when, not if, authorities step back into the market.
"This week coincides with Japan's Obon holiday period, when reduced market participation tends to lower liquidity, potentially increasing the risk of sharp market moves during thin trading hours," said Masayuki Nakajima, senior strategist, fixed income, currencies and commodities strategy at Mizuho.
"In particular, if (the dollar) were to break decisively above the psychologically important 160 (yen) level, concerns about intervention could intensify further."
Speculators have cut bearish yen bets by the most in more than 12 years, with U.S. regulatory data showing the net short yen position fell by $8.865 billion to $3.604 billion in the week to August 4.
However, as in previous intervention episodes, analysts expect speculators to rebuild short positions, though the prospect of faster monetary tightening in Japan remains a risk.
US INFLATION DATA IN FOCUS
Elsewhere, the Reserve Bank of Australia kept its cash rate at 4.35%, as expected, but warned it may need to raise rates again. The RBA has already increased rates by 75 basis points since February to combat persistent inflation fuelled by surging energy costs.
The Aussie was steady at $0.7054, hovering near its strongest level since mid-June after the decision.
The week's main event for currency markets is a run of U.S. inflation data, which kept traders cautious and the dollar largely range-bound.
Wednesday's consumer price index data could show the impact of the Iran war on inflation. Producer price data on Thursday and retail sales figures on Friday are expected to provide further clues on the inflation outlook.
The U.S. dollar index was broadly steady at 99.84 as oil prices hovered near one-week highs amid fading hopes for a U.S.-Iran agreement to end the Middle East conflict.
The euro fetched $1.1537 and sterling $1.3499, both little changed on the day.
China's yuan remained near a 3-1/2-year high against the dollar, with the offshore yuan at 6.7484 per dollar and the onshore yuan at 6.7468. [CNY/]
(Reporting by Ankur Banerjee in Singapore and Alun John in London. Editing by Stephen Coates, Kate Mayberry and Mark Potter)
