“So far they have been successful in protecting 124 though we still think it will be taken out. It’s just the start of the battle,” said Mr Jeremy Hawkins, chief economic adviser at the Bank of America. “If it looks like we’re taking out 124, then we’ll probably see them in again.”
The yen has leapt over six per cent against the dollar since the start of April as concerns over the strength of the US recovery have coincided with optimism that Japan’s economy may be turning the corner.
The dollar stood at 125.20 yen in the European midsession, up almost two yen from five-month lows set on Wednesday. The greenback also gained against European currencies, leaping 0.6 per cent against the Swiss franc to 1.5875 francs as signs of easing tension between India and Pakistan encouraged an unwinding of safe-haven trades. Gains against the Swiss franc helped lift the dollar a third of a per cent to $0.9175 per euro, recovering more than a cent from eight-month lows hit on Wednesday.
Japanese officials made clear on Friday that they were ready to step in again if the yen rose too quickly. “Our foreign exchange policy is unchanged,” finance minister Masajuro Shiokawa told a news conference. “We want foreign exchange rates to be stable.”
The Bank of Japan, which has the largest foreign exchange reserves of any central bank in the world, is estimated to have bought about $three billion in Thursday’s intervention.
“The market is not in the mood to take on the Japanese authorities on Friday,” said Mr Steven Pearson, head of currency strategy at Halifax. “We are seeing better dollar sentiment on Friday and it’s pushing up against European currencies as well.” Dealers added that the dollar was also benefiting from short-covering ahead of a long memorial day weekend in the United States.
“People are squaring up ahead of the weekend,” said a trader at a Japanese bank in London. “US data on Thursday was better than expected and there’s always a chance that US GDP could be revised higher. Revised US gross domestic product data for the first quarter will be released at 1230 GMT.
As dollar bears went into retreat, data showing strong Italian retail sales, solid French first-quarter growth and benign German inflation failed to lift the euro. “The dollar is stronger against everything,” said a trader at a European bank.
Italian retail sales grew 3.0 per cent year-on-year in March, one of its biggest rises in the the last two years, while the French economy grew by a respectable 0.4 per cent in the first quarter.
The German finance ministry said that consumer prices rose by a preliminary 1.2 per cent year-on-year in May slower than some in the market had feared. Soft inflation data from German states also helped push back expectations of when the European Central Bank would raise interest rates. Analysts said sentiment toward the dollar, which has been under pressure recently from concerns about the US economy, was slightly better following news of a stronger than expected 1.1 per cent rise in durable goods orders released on Thursday.