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Asian currencies strengthened against the U.S. dollar on Thursday, led by a sharp rally in the Japanese yen as traders increased bets on a Bank of Japan rate hike and remained alert to possible currency intervention.
USD/JPY fell 0.6% to around 157.81 after the yen climbed as high as 157.95 during Asian trading. The Japanese currency had already gained about 1.2% in New York on Wednesday.
The rally followed comments from BOJ board member Hajime Takata, who said a 25-basis-point rate increase was not guaranteed and suggested consecutive hikes remained possible. Markets are now assigning a small probability to a 50-basis-point increase at the BOJ's September 18 meeting, compared with roughly 90% expectations for a 25-basis-point move earlier this week.
Speculation over intervention has also intensified. Japanese Finance Minister Satsuki Katayama and U.S. Treasury Secretary Scott Bessent have indicated readiness to act if necessary. However, DBS questioned whether Wednesday's yen move reflected official intervention, noting that it was smaller than previous episodes.
The U.S. Dollar Index slipped 0.1% to 99.43, although expectations for a Federal Reserve rate hike continued to provide support. Markets priced about a 61% probability of a September increase, with Friday's U.S. nonfarm payrolls report expected to influence the outlook.
Renewed U.S.-Iran fighting near the Strait of Hormuz has added to inflation concerns by driving oil prices higher and threatening energy supplies.
Elsewhere, the Australian dollar hovered near $0.72 after Australia's economy expanded 2.1% year-on-year in the June quarter, beating expectations. The country also recorded a A$1.923 billion July trade surplus.
The New Zealand dollar strengthened about 0.2%, while USD/INR dropped 0.8% to 94.237 as the rupee extended its rally. The South Korean won was broadly unchanged, while the Singapore dollar and Malaysian ringgit gained modestly.
Markets are also awaiting Bank Negara Malaysia's decision later Thursday, with the central bank widely expected to keep its Overnight Policy Rate unchanged at 2.75%.
