Yen weakens vs dollar on talk of more policy easing

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - The yen fell to a two-week low against the dollar on Thursday, pressured by speculation that the Bank of Japan could expand its monetary stimulus as soon as next month.

The Japanese currency has surged more than 9 percent against the dollar in 2016 despite Japan's series of monetary easing measures. That has fueled intervention talk from Japanese officials, resulting in a 1.7 percent drop in the value of the yen so far this week.

Talk of more action increased after prominent Japanese academic Takatoshi Ito said on Thursday Japan's central bank may expand monetary stimulus either in June or July. Ito has close ties to BOJ Governor Haruhiko Kuroda.

For his part, Kuroda said the BOJ won't hesitate to take further easing steps if necessary, adding that there were still large downside risks to Japan's economy. The BOJ introduced negative interest rates earlier this year, but that has had little impact on the yen or economic data.

"I foresee a major reversal on the yen," said Juan Perez, currency strategist at Tempus Consulting in Washington, adding that he believes the BOJ will act aggressively at its next policy meeting in June.

"In the second half of the year, we could see dollar/yen go back to between 120-125 yen."

The dollar rose 0.6 percent to 109.06 yen in late trading, after earlier hitting a two-week peak of 109.39 yen and recovering from a 18-month low of 105.55 yen on May 3. That low was struck after the BOJ held off from expanding its monetary stimulus in late April.

Federal Reserve officials, meanwhile, took center stage on Thursday, more or less voicing willingness to continue on a rate-hiking path. Cleveland Fed President Loretta Mester, for instance, said even though there is uncertainty in the Fed's economic forecasting, that should not stop it from taking monetary policy decisions. She added that inflation measures have moved higher.

In another event, Boston Fed President Eric Rosengren said the Fed should raise rates again if second-quarter data confirms that the U.S. labor market is near full strength and inflation is on track to accelerate.

Despite these Fed officials' less cautious stance on rates, the market remained skeptical, with just one rate hike expected this year.

"The (U.S.) data has simply not supported an aggressive approach to hiking rates this year," said Marvin Loh, market strategist, at BNY Mellon in Boston.

The dollar index rose 0.4 percent to 94.171 <.DXY>.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Paul Simao and Nick Zieminski)

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