Yen Slides Against Majors

(RTTNews) - The Japanese yen weakened against other major currencies in the European session on Thursday, after the U.S. business activity index was much greater than anticipated.

This increased anticipation that, if the economy improves, the Federal Reserve will hike interest rates once more this year. This in turn reduced expectations that the interest rate difference between the US and Japan would close anytime soon.

Federal Reserve (Fed) policymakers' hawkish comments may help the greenback. Fed Governor Michael Barr stated on Wednesday that the US central bank will probably need to implement additional interest rate increases after taking a significant step last week to "recalibrate" short-term borrowing costs in order to reduce inflation.

According to market sources, the decline in the value of the yen has rekindled worries about the Bank of Japan and the Japanese government intervening in the market. Later today, the Fed speak will be attentively observed.

The foreign currency guidelines put in place since the coordinated Japan-US intervention are still in force, according to Japanese Finance Minister Satsuki Katayama's statement on Thursday.

Early in the day, Japan's 10-year government bond (JGB) yield increased by 8 basis points (bps) to 3.055%, a 30-year high, following an overnight spike in US Treasury yields.

The Bank of Japan (BoJ) increased its policy rate by 25 basis points (bps) to 1.25% last week, the highest since 1995. Board members Toichiro Asada and Ayano Sato dissented, and the vote was 7-2. The opposition from two legislators is seen by markets as a hint that further increases might be more difficult to carry out. This could therefore limit the JPY's upside.

In economic news, the manufacturing sector in Japan continued to expand in September, albeit at a slower pace, the latest survey from S&P Global revealed on Thursday with a manufacturing PMI score of 54.1. That's down from 54.9, although it remains above the boom-or-bust line of 50 that separates expansion from contraction. The survey also showed that the services PMI fell to 51.6 from 52.5 in August, while the composite PMI dropped to 52.5 from 53.5. In the European trading today, the yen fell to more than a 2-day low of 180.46 against the euro and more than a 2-week high of 192.49 against the Swiss franc, from an early 6-day high of 179.51 and a 2-day high of 191.30, respectively. If the yen extends its downtrend, it is likely to find support around 184.00 against the euro and 197.00 against the franc.

Against the U.S. and the Canadian dollars, the yen slid to a 3-week low of 158.49 and a 2-day low of 112.39 from early highs of 157.80 and 111.86, respectively. The yen may test support near 161.00 against the greenback and 114.00 against the loonie.

The yen edged down to 209.87 against the pound, from an early 6-day high of 208.78. On the downside, 216.00 is seen as the next support level for the yen.

Looking ahead, Canada retail sales for July, average weekly earnings for July, U.S. current account data for the second quarter, U.S. weekly jobless claims data, building permits for August, new home sales for August and U.S. Kansas Fed composite index for September is slated for release in the New York session.