Daily Afternoon Report 09.05.2016

The yen fell to the lowest levels in two weeks against the dollar on Monday after Japan’s finance minister warned that Tokyo was prepared to intervene in the foreign exchange market if necessary.

USD/JPY hit highs of 108.38, the strongest level since April 28 and was last at 108.22, up 1.03% for the day.

The dollar had fallen to 18-month lows of 105.05 against the yen last week.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, ticked up 0.14% to 93.96, off Friday’s lows of 93.08.

Japan’s Finance Minister Taro Aso said Monday that Tokyo is ready to intervene in the currency market if excessive moves in the yen are enough to affect the country’s trade, economic and fiscal policies.

The yen initially showed little reaction to the comments amid the view that Japanese officials are unlikely to take steps to weaken the currency in the absence of support for such a move.

Late last month the U.S. Treasury Department added Japan to a watch list of countries it is monitoring to gauge whether their foreign exchange policies provide an unfair trade advantage.

In its report, the Treasury noted that the current dollar-yen market was “orderly” and reiterated all countries must abide by G20 and G7 commitments on exchange rate policies, widely seen as a call for Japan to limit foreign exchange interventions.

Aso said Monday the Treasury’s move to put Japan on a watch list “won’t constrain” Tokyo’s currency policy.

The yen has strengthened broadly since the Bank of Japan held back from implementing fresh stimulus measures at its April meeting, defying market expectations for further easing.

The strong yen is posing a challenge to the BoJ’s attempts to spur price growth.

Demand for the dollar was also underpinned after New York Federal Reserve President William Dudley said Friday that it was reasonable to expect two rate hikes this year, despite data showing that U.S. jobs growth increased at the slowest rate in seven months in April.

The yen was also sharply lower against the euro, with EUR/JPY rallying 1.05% to 123.43.

The single currency was little changed against the dollar, with EUR/USD at 1.1407.

In the euro zone, data on Monday showed that sentiment among investors and analysts improved slightly in May, but concerns over the outlook for the global economy continued to weigh.

The Sentix investor sentiment index rose to 6.2 from 5.7 in April, compared to expectations for a reading of 6.1.

A separate report showed that German factory orders rose by a larger than forecast 1.9% in March, the largest increase since June, boosted by strong foreign demand.