The Japanese yen rose against the dollar on Friday after Japans Finance Minister Satsuki Katayama said Tokyo would not rule out any options to counter yen weakness, including coordinated intervention with the United States.

The yen had earlier this week fallen to its lowest level in a year and a half. It was last up 0.3% at 158.13 per dollar, though it remains on course to record a third consecutive weekly loss against the US currency.

The dollar index, which measures the US currency against a basket of peer currencies, was heading for a third straight weekly gain, after positive US economic data pushed back expectations for interest rate cuts by the Federal Reserve.

Katayama said the joint statement signed with the United States last September was extremely important and included language related to intervention.

Japanese markets are in a wait-and-see mode ahead of a pivotal week in which Prime Minister Sanae Takaichi, known for her accommodative fiscal stance, is expected to dissolve parliament ahead of early elections, while the central bank meets to discuss monetary policy. Sources told Reuters that some policymakers at the Bank of Japan see room to raise interest rates sooner than markets currently expect, in order to counter yen weakness.

The Japanese currency has weakened this week amid expectations that Takaichi would have greater latitude to roll out additional stimulus measures, with early elections expected at the start of next month.

Shinichiro Kadota, Head of FX and Rates Strategy for Japan at Barclays in Tokyo, said: Reports of the dissolution of the lower house are adding pressure to the yen, and we have extended our target for long positions in dollar/yen, but the risk of potential intervention could cap the upside.

Barclays said in a note that Japans ruling Liberal Democratic Party could face a tough election as the opposition strengthens coordination, adding that monetary policy could shift not only depending on the election outcome, but also on developments in the foreign exchange market.

The dollar supported by data

The dollar indexs advance paused on Friday, with the currency slipping 0.07% to 99.28 points, though it remains on track for weekly gains of around 0.15%.

The dollar rose on Thursday after data showed US weekly jobless claims unexpectedly declined, a move seen as reflecting difficulties in adjusting the data for seasonal fluctuations.

Federal funds futures also pushed back expectations for the first rate cut to June, supported by improved employment data and as central bank policymakers voiced concerns over inflation.

Elsewhere, Philip Lane, Chief Economist at the European Central Bank, said the ECB would not discuss any change in interest rates in the near term if the economy stays on its current path, but warned that new shocks such as a potential deviation by the Federal Reserve from its mandate could disrupt expectations.

The ECB has kept interest rates unchanged since ending a rapid easing cycle in June, and signaled last month that it is in no hurry to adjust monetary policy again.

The euro was steady at $1.16120, on track to post a third consecutive weekly loss against the US dollar, after falling on Thursday to its lowest level versus the dollar since early December.