* Yen hands back half its intervention boost
* Weekly drop is largest since previous intervention faded
* Dollar balances oil gains with retreating rate hike bets
SINGAPORE, Aug 14 (Reuters) - The yen headed for its biggest
weekly loss in three months on Friday as the impact of U.S. and
Japanese intervention faded, leaving traders to wager another
round of official buying would be needed to stem the rot.
The currency has surrendered roughly half the gains sparked
by intervention in late July and early August, falling about 1%
this week to 159.43 per dollar. It was trading near 164
per dollar before July's intervention and traders see the 160
level as a potential trigger for fresh official action.
The yen's retreat is set to be its biggest weekly drop since
May, when it was also backsliding after a round of official
buying. A fall of about 0.8% to 183.91 yen per euro
this week is the largest since April.
The Japanese currency was stable early on Friday but has
been falling for years, and was at near four-decade lows before
the intervention, on a combination of perennially low interest
rates and newer confidence concerns around government spending
and funding.
The broader currency market has been fairly steady this
week, with support for the dollar from higher oil prices and
Middle East tension offset by benign U.S. jobs and inflation
reports that reduced expectations for U.S. interest rate hikes.
Overnight figures showing unchanged U.S. producer prices in
July further supported dialling back bets on a September hike,
now seen as a roughly 35% chance.
The euro edged 0.2% lower to $1.1536 this week while
sterling was flat at $1.3489. A surprisingly low
inflation expectations reading knocked the New Zealand dollar
on Thursday, but it bounced back as the swap market stuck
with an 85% chance of a rate hike in September.
The Australian dollar hovered at $0.7060.
THE ONUS IS ON BOJ
Japan may conduct more joint yen intervention "at any time"
and signal the chance of faster-than-expected interest rate
hikes to stem further falls, Tokyo's former top currency
diplomat Mitsuhiro Furusawa told Reuters in an interview.
Markets have already bet on the Bank of Japan raising rates
further and sooner than previously expected after U.S. Treasury
Secretary Scott Bessent said Japan should reinforce currency
intervention with policies and fundamentals that underpin the
yen.
"It's not much of a surprise that the yen has retraced,"
said OCBC strategist Sim Moh Siong.
"Because for the intervention to change the yen trend, we
need to see a more hawkish BOJ stance, which the market is
trying to price in, but at the same time, we need validation,"
he said. "The onus is on BOJ to step up."
Markets currently see a 76% chance of a BOJ hike in
September, according to Tokyo Tanshi data, a dramatic increase
compared with 24% on July 30, but one which also opens the door
to yen falls if investors are disappointed.
China's yuan hovered at 6.7452 in offshore trade on
Friday, not far from a 3-1/2-year high touched last week.
South Korea's won, which was also supported by
official intervention as authorities sold dollars in concert
with Japan last month, has held steadier than the yen though was
set to notch a modest loss of 0.6% on the dollar this week.
"Interventions, to me, even if they're coordinated, even if
they are quite powerful, are at best temporary, and at worst an
invitation for the market to challenge them," said Omar Slim,
co-head of Asia public fixed income at MetLife Investment
Management.