Yen advances after report of BOJ rate check, hints on intervention

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By Kevin Buckland and Rae Wee

TOKYO (Reuters) - The yen rose on Wednesday and distanced itself from a 24-year trough after media reports that the Bank of Japan conducted a rate check, in apparent preparation for currency intervention, while policymakers stepped up warnings about the yen's sharp fall.

The Nikkei website cited unidentified sources for its report on the rate check, in which central bank officials call up dealers and ask for the price of buying or selling yen.

Japanese Finance Minister Shunichi Suzuki said on Wednesday that the government was considering stepping in to combat sharp falls in the currency, which has been battered by a surging greenback.

Suzuki told reporters that recent moves in the yen have been "rapid and one-sided", adding that yen-buying currency intervention was among the government's options should such moves continue.

The yen gained as much as 0.7% to 143.53 per dollar following the news, reversing some of its overnight losses and edging away from the low of 144.99 hit a week ago, its weakest since August 1998.

There was scepticism, however, over whether the potential for intervention would offer sustained support for the yen.

"I would expect that it will probably lead to some temporary yen strength ... but unless it's coordinated with other global central banks or accompanied by a change of BOJ policy, I don't expect it will last for too long," said Udith Sikand, senior emerging markets analyst at Gavekal Research.

The dollar moved broadly lower on the news. The U.S. dollar index, which measures the currency against six major peers including the yen, was 0.2% down at 109.6.

Overnight, the dollar/yen rate, which is extremely sensitive to interest rate differentials, surged 1.26% as 10-year Treasury yields climbed to a three-month high following an unexpected rise in the U.S. consumer price index (CPI) for August.

The yield on two-year Treasury notes, which typically reflects interest rate expectations, peaked at 3.804% on Wednesday, the highest since 2007. The 10-year yield last stood at 3.4178%.

"This has really shattered the illusion ... that inflation had peaked and was coming down," Ray Attrill, head of currency strategy at National Australia Bank (OTC:NABZY), said in a podcast.

"Hence markets have decided that next week's Fed decision is not between 50 and 75 (basis point increase), it's now between 75 and 100."

Financial markets now have fully priced in an interest rate hike of at least 75 bps at the conclusion of the FOMC's policy meeting next week, with a 38% probability of a super-sized, full percentage-point increase.

A day earlier, the probability of a 100 bps hike was zero.

Nomura's economists said they now believe a 100 bps rate hike is the most likely outcome.

The euro was up 0.27% at $0.99945, while Sterling gained 0.28% to $1.1526, after a 1.61% plunge overnight.

"It's very hard to bet against a strong U.S. dollar at this stage, which is still not seeing any signs of softness. And if expectations of continued aggressive hiking in the last quarter of the year continue, that may prolong the trend of dollar strength," said Jeff Ng, a senior currency analyst at MUFG Bank.

The risk-sensitive Aussie was marginally up 0.04% at $0.67355, after a precipitous 2.26% slide overnight.

Leading cryptocurrency bitcoin rose 0.86% to $20,350.