* Yen hits 160, testing intervention tolerance
* Dollar, oil set for weekly gain on Gulf tensions
* Markets await US employment report
(Updates throughout with London trading)
By Amanda Cooper
LONDON, June 5 (Reuters) - The Japanese yen tested the
160-per-dollar barrier on Friday, drawing sharp official
warnings, as the dollar held firm ahead of key U.S. employment
data and Middle East tensions underpinned safe-haven demand.
Peace talks between the U.S. and Iran are at a stalemate,
and a reignition of hostilities this week has kept oil above $90
a barrel, raising risks to global growth.
The yen headed for a fourth straight weekly loss against
the dollar, having unwound gains from official buying in late
April and early May. By Friday, it was pressing the
160-per-dollar mark that has triggered intervention in the past,
prompting another warning from Finance Minister Satsuki
Katayama, who said Japan was ready to respond at any time and
reserved the right to take "decisive action" against excessive
volatility. The yen was last at 159.93 per dollar.
"Markets are probably a bit reluctant to try to test the BOJ
too much" ahead of the U.S. nonfarm payrolls report later
Friday, as authorities have shown renewed willingness to
intervene, said Khoon Goh, head of Asia research at ANZ.
Despite the risk of intervention, investors have built the
largest bearish yen position since July 2024 in recent weeks
. Without a meaningful shift in the outlook for
rates and economic growth in Japan, analysts say there is little
incentive to unravel those holdings, currently worth nearly $9
billion, according to LSEG data.
The Bank of Japan is widely expected to raise interest rates
this month, as rising energy import costs add to price
pressures. Money markets also point to a second hike by
year-end.
GULF HOSTILITIES SUPPORT DOLLAR DEMAND
The dollar has been the stand-out in foreign exchange this week,
rising about 0.4% against a basket of major currencies
and around 1.3% over the past month. It has been supported by
strong U.S. data, expectations for Federal Reserve rate hikes
and safe-haven demand amid concerns about the impact of higher
energy prices on importers such as the euro zone, Japan and
China.
Citi's U.S. economic surprise index has hit a three-year high
as data on employment, consumer spending and business
activity have beaten forecasts, reviving the "American
exceptionalism" narrative. U.S. 10-year Treasury yields
have risen 50 basis points since the start of the
Iran war, more than those of any other major economy, except
Britain where yields are up 66 bps.
"The U.S. is still providing positive economic surprises ...
with two-year yields north of 4%, you end up with a scenario
where suddenly the conditions for the dollar remain reasonably
supportive. And conversely, from a euro perspective, the
perpetuation of elevated energy prices remains a drag on
activity there," CIBC Capital Markets head of G10 FX, Jeremy
Stretch, said.
The euro, down 1% over the past month despite expectations of up
to three European Central Bank rate hikes this year, was up 0.2%
on Friday at $1.1634. The pound edged up to
$1.345.
Markets now await U.S. nonfarm payrolls later in the day. A
Reuters poll forecast an 85,000 rise in jobs in May after a
115,000 increase in April, with the unemployment rate seen
steady at 4.3%.
(Additional reporting by Jiaxing Li in Hong Kong. Editing by
Thomas Derpinghaus and Mark Potter)