FOREX: Yen pinned near 40-year lows as intervention risks mount

The Japanese yen floundered around four-decade lows on Monday amid mounting intervention risks, while the dollar steadied as investors weighed the U.S. rates outlook after a soft jobs report dented bets of a near-term Federal Reserve rate hike.

The yen JPY= fetched 162.11 versus the dollar, not far from the 1986 low of 162.84 plumbed last week, as traders remained nervous about possible intervention after a sudden surge in buying briefly lifted the currency on Thursday.

The euro EUR= was at $1.1429, holding near to its strongest level in two weeks, while sterling GBP= last bought $1.3338. The dollar index =USD, which measures the U.S. currency against six other units, was at 100.97.

The South Korean won KRW=dipped on the first day of its historic 24-hour onshore spot dollar-won trading. It was fetching 1,531 per dollar.

YEN VIGIL IN PLACE

The yen remained firmly in the spotlight, hovering near a 40-year low as the threat of official intervention keeps traders on edge, even though analysts doubt any move by Tokyo would deliver lasting support.

Moh Siong Sim, currency strategist at OCBC, said the market is still contending with hawkish Fed risk, which is a negative for the yen. However, concerns about potential intervention by Japanese authorities have limited further weakness in the currency.

"In the near term I would expect the yen to remain under pressure," he said.

Investors are also concerned about Japanese officials abandoning their habit of telegraphing risks, instead signalling a more targeted campaign to squeeze speculators and raise the cost of betting against the yen.

Ben Bennett, head of investment strategy for Asia at L&G Asset Management, expects Japanese authorities to intervene if currency volatility increases, but said "the direction of travel is a function of easy domestic fiscal policy and the big interest-rate differential with the U.S."

"I don't think Intervention will change that."

DOLLAR GETS A BREATHER

The dollar struggled to keep its head above water after posting its worst weekly performance since April last week, dragged by the U.S. payrolls reportshowing job growth slowed sharply in June, curbing market expectations of a rate hike.

Investor focus is now turning to the minutes of the Fed's June meeting, due on Wednesday, for clues on policymakers' views about the interest-rate outlook. Next week's inflation report is expected to be the key data release for markets, offering fresh insight into the path of prices and potential Fed policy moves.

Strategists at Commonwealth Bank of Australia said the minutes may be shorter or provide less insight than usual given Fed Chair Kevin Warsh's view the central bank has provided too much guidance in the past.

OCBC's Sim expects dollar upside of 2% to 3% by the end of this year. "But the near-term outlook is that the dollar could pause and we could see a return of some carry trades in favour of high carry."

"I expect the dollar to consolidate in the near term," he said.

Elsewhere, the New Zealand dollar NZD=eased 0.35% to $0.5686 ahead of a central bank meeting this week, where the Reserve Bank of New Zealand is broadly expected to hike for the first time in over three years.

-Reporting by Ankur Banerjee in Singapore;Editing by Shri Navaratnam/Reuters