Yen Finds Support, Dollar Rebounds Ahead of US Inflation

CURRENCY - SINGAPORE. The yen steadied near a one-week high on Tuesday as comments from Japan's top central banker on a possible end to its negative interest rate policy reverberated throughout markets, while the dollar regained some lost ground.

Bank of Japan (BOJ) Governor Kazuo Ueda told a newspaper interview over the weekend the bank could get enough data by year-end to determine whether it can end negative rates, remarks that on Monday saw the yen clock its largest daily gain against the dollar in two months.

The Japanese currency was last more than 0.1% lower at 146.83 per dollar, after scaling a one-week top of 145.91 in the previous session.

"Essentially, Governor Ueda laid out a conditional path and timeframe for the first-rate hike and a move away from its negative interest rate policy, should the data permit," said Chris Weston, head of research at Pepperstone.

"One can assume that the BOJ are also one step closer to moving away from yield curve control (YCC), and logically one could argue that the BOJ would like to be able to lift rates and remove YCC concurrently."

The yen has come under immense pressure against the dollar as a result of growing interest rate differentials with the United States, since the Federal Reserve began its aggressive rate-hike cycle last year while the BOJ remains a dovish outlier.

Taking a different view, however, Japan's senior ruling party official Hiroshige Seko said on Tuesday he took Ueda's remarks as meaning that the central bank will continue with monetary easing.

Elsewhere, the U.S. dollar reversed some of its losses from the previous session, with the Aussie last marginally lower at $0.6430 while the New Zealand dollar fell 0.16% to $0.5910.

Both antipodean currencies had been among the biggest beneficiaries against a weaker greenback on Monday and gained 0.8% and 0.6%, respectively.

The euro, touched a one-week high of $1.0771 earlier in the session, and was last down by 0.08% to trade at $1.0738.

"Given the fact that we've also had pretty strong momentum behind long U.S. dollar positions broadly across G10 currency pairs, I think it's given the market reason to take profit ahead of the (inflation) numbers in the U.S.," said IG market analyst Tony Sycamore.

U.S. inflation data for the month of August is due on Wednesday, with traders on the lookout for whether the world's largest economy is indeed on track for a "soft landing" and whether the Fed has further to go in raising rates.

The U.S. dollar index, which ended last week with an eight-week winning streak, rose 0.07% to 104.64, after falling 0.46% in the previous session. Sterling steadied at $1.2514.

The onshore and offshore yuan both found some support near their one-week highs and last bought 7.2907 per dollar and 7.3072 per dollar, respectively.

The two had clocked their largest daily gain against the dollar in about six months on Monday.

Reuters reported that China's central bank is tightening its scrutiny of bulk dollar purchases by domestic firms, at a time when the yuan faces mounting depreciation pressure.

In cryptocurrencies, bitcoin rose more than 2% to $25,720, after falling below $25,000 for the first time in three months on Monday.

Ether similarly gained 1.8% to $1,579.20, after sliding to a six-month low of $1,531.10 in the previous session.

"At the moment, what we're really seeing is the effects of tighter liquidity in the market starting to weigh on speculative assets like bitcoin once again," said Kyle Rodda, senior financial market analyst at Capital.com.