Stronger risk appetite, intervention talk drives down yen

[May 17, 2016]  By Jemima Kelly

LONDON (Reuters) - The yen hit a 2-1/2-week low on Tuesday as a move up in oil prices boosted risk appetite, and as investors worried that after giving several warnings, Japanese officials would intervene to weaken the yen.

The Japanese currency has fallen around 3.5 percent against the dollar since hitting an 18-month high two weeks ago, with policymakers stepping up talk that they are watching the yen's movements and will step in to weaken it if necessary.

It fell half a percent to 109.65 yen per dollar on Tuesday, its weakest since April 28.

Japan will this weekend host a meeting of G7 finance leaders, at which it hopes for some sort of a coordinated policy response to the yen's recent appreciation: 13 percent in the past five months, even with the last two weeks' falls.

"There's a nervousness among traders now that the Japanese officials have stepped up their verbal interventions...and so traders are speculating that the Japanese central bank will step in eventually if dollar/yen goes too low," said Commerzbank currency strategist Thulan Nguyen, from Frankfurt.

"There's also the upcoming G7 meeting - I'm not sure if people are really expecting that they'll get a free ticket for intervention, but possibly something else," she added, suggesting fiscal policy coordination or a scrapping of a planned tax hike as possible measures.

The yen was also dented by a pick-up in risk appetite, with oil prices trading near six-month highs. [O/R]

That rise in crude oil prices had earlier sent commodity currencies soaring, but they then eased back a little, along with oil prices.

The Australian dollar had been the strongest climber, gaining as much as 1.2 percent against its U.S. counterpart, having also been lifted by minutes from the Reserve Bank of Australia (RBA), which tempered expectations of an interest rate cut.[O/R]

"The expectation was that the minutes of the RBA meeting would have set us up for another cut in June, and that was very much not the case," said RBC Capital Markets currency strategist Adam Cole in London.

The dollar index, which tracks the currency against a basket of six others, was flat at 94.573, close to a three-week high of 94.845 hit on Friday.

The major data focus on Tuesday is U.S. inflation due at 1230 GMT.

Fed funds futures rates show investors see only a 4 percent chance the U.S. Federal Reserve will raise interest rates at its June policy meeting, but many investors believe another hike will come later this year.

(Editing by Raissa Kasolowsky)

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