By Tom Westbrook
SINGAPORE, Feb 25 (Reuters) – A wobbly yen was pinned near a two-week low on Wednesday as the government nominated to the central bank board two academics perceived as allowing higher inflation to spur growth, while an inflation surprise sent Australia’s dollar higher.
The Australian dollar rose 0.7% to $0.7109 after a pickup in inflation raised the risk of rate hikes, the sharpest gainer in an Asia session where traders had one eye on U.S. President Donald Trump’s State of the Union address.
Smaller gains for the New Zealand dollar, sterling and euro left the dollar a touch lower, at $1.1796 on the euro and $1.3520 against the British pound.
The yen stayed under further pressure on Wednesday after dropping 0.8% overnight to as weak as 156.28 per dollar on a report Japan’s prime minister, Sanae Takaichi, raised concerns about additional rate hikes with the Bank of Japan’s governor.
The yen hovered around 156 and was last at 155.77.
The Japanese government on Wednesday nominated two academics seen as reflationists – or likely to tolerate inflation in order to raise growth – to join the BOJ’s board, appointments seen as a gauge of thinking on monetary policy.
“According to the report yesterday, Takaichi-san looks to be negative on higher policy rates and then she chose at least one super-dovish member,” said Tohru Sasaki, chief strategist at Fukuoka Financial Group and a former BOJ official, referring to Ayano Sato, a professor nominated to the board.
“These choices reflect the reflationist tendencies of the Takaichi cabinet.”
The yen has been sliding for years thanks to Japan’s low interest rates and has been under pressure since Takaichi came to power in October on concerns that she would further strain a stretched national budget.
The New Zealand dollar inched higher to $0.5983, while China’s yuan extended sharp Tuesday gains to touch an almost three-year peak of 6.8703.
The U.S. Supreme Court’s striking down of many of President Donald Trump’s heaviest tariffs would likely lead to a lower overall rate on Chinese goods, analysts said, paving the way for further yuan appreciation.
The yuan, which has gained nearly 7% in 10 months, hit 6.8766 to the dollar on Tuesday, its highest in almost three years, and held at 6.8778 in offshore trade.
“The fundamental underpinnings for our CNY appreciation view – a starting point of deep currency undervaluation and the remarkable strength of the export sector – remain very much in place,” said analysts at Goldman Sachs.
“While uncertainties remain, we believe the likelihood of President Trump imposing additional Section 301 tariffs on Chinese products is low ahead of his planned visit to China at the end of March.”
(Reporting by Tom Westbrook; Editing by Edwina Gibbs and Christian Schmollinger)
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