Japan intervenes to prop up yen ahead of BOJ policy decision, source says

By Leika Kihara

TOKYO, July 31 (Reuters) - Japan conducted yen-buying, ‌dollar-selling intervention in New ​York on Thursday, ​a market source said, its first such foray in three months, as the currency's slump to four-decade lows threatened to worsen living costs hit by the Iran war-driven energy shock.

The move came ahead of the Bank of Japan's policy ‌decision on Friday, where the central bank is widely expected to keep interest rates steady at 1% but ⁠signal its readiness to continue pushing up borrowing costs.

U.S. Treasury Secretary Scott Bessent said on Thursday that Japan may have intervened to prop up its yen currency, according ‌to a Fox Business Network reporter, who ‌added Bessent said the yen "seems very undervalued to me."

The Nikkei newspaper reported earlier on Friday that Japan likely conducted massive yen-buying intervention. It also reported that U.S. authorities conducted so-called rate checks, which are precursors for currency intervention.

The Japanese finance ministry's foreign exchange division ​could not be reached immediately for comment. The New York Federal Reserve also declined to comment.

The dollar sank to a more than two-month low against the Japanese yen on Thursday in what analysts said looked like official intervention. After hitting 159.22 per dollar on Thursday, ⁠the yen stood at 159.63 in Asia on Friday.

"The timing was faster than expected as I saw a good chance of intervention after the BOJ's policy meeting on July 30-31," said ​Toru Suehiro, chief economist at Daiwa Securities.

"If the U.S., as reported, has conducted rate checks and may be endorsing a weak dollar, that's positive for the Takaichi administration," he said.

Markets have been on alert for ​yen-buying by Japanese authorities, who have warned of action for months as the ‌currency's weakness exacerbates the cost-of-living impact of rocketing energy import prices.

FOCUS SHIFTS TO BOJ

Japan spent a record 11.7 trillion yen ($73 billion) intervening in foreign exchange markets between late April and early May. But the brief boost ⁠to the yen was quickly wiped out as the currency resumed its downtrend and slid to a 40-year low below 163 per dollar earlier this month.

Finance Minister Satsuki Katayama's repeated threats of "decisive" action have kept markets on edge but failed to give a sustained boost to the sagging currency.

Top currency diplomat Atsushi Mimura, ⁠who decides how and when to intervene, has stayed quiet since the previous intervention, keeping markets guessing on when Tokyo could step into the market again.

Markets ​are shifting focus on how hawkish BOJ Governor Kazuo Ueda could be on the future rate-hike path in his post-meeting news briefing expected to be held from 3:30 p.m. (0630 GMT).

Ueda is sandwiched between Prime Minister Sanae Takaichi's dovish administration wary of further rate hikes, and the need to avoid causing further yen falls ‌that could push up import costs and broader inflation, analysts say.

While Washington appears to endorse Tokyo's efforts to combat a weak yen, it has also signalled the need for the BOJ to push through further ‌rate hikes.

In a semi-annual currency report released earlier this month, the U.S. Treasury Department said yen weakness has persisted despite the narrowing of U.S.-Japan interest rate ⁠differentials, warning excess volatility in the currency was undesirable.

The ‌Treasury also called for further BOJ rate ​hikes, warning that inflation has strained households' purchasing power even as nominal wages rose notably.

($1 = 159.7000 yen)

(Reporting by Leika Kihara; additional reporting by Takaya Yamaguchi in Tokyo and David Lawder in Washington; Editing by Chris Reese, Sanjeev Miglani ‌and Sonali Paul)

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