The Japanese yen strengthened slightly on Tuesday after strong wage income data, while the U.S. dollar held steady as traders waited for more signals on interest rates from the Federal Reserve.
Yen Gains After Strong Wage Data
The Japanese yen moved higher after government data showed that wages increased for a fifth straight month in May.
The USD/JPY pair fell about 0.2%, showing modest strength in the yen.
However, wage growth slowed compared with the previous month. Higher inflation, partly linked to disruptions from the Middle East war, continued to pressure consumer spending.
BOJ Rate Hike Expectations Support Yen
The latest wage data pointed to continued income growth in Japan.
This is important because the Bank of Japan has said stronger wage growth is needed before it can raise interest rates further.
The BOJ raised rates by 25 basis points in June and signaled that more rate hikes could follow.
Yen Remains Near 40-Year Lows
Despite the stronger wage data, support for the yen remained limited.
The currency stayed close to levels last seen in 1986, keeping markets alert for possible intervention from Tokyo.
Several Japanese officials have warned against excessive speculation against the yen.
As a result, traders are watching closely to see whether Japan may step into the currency market again.
Japan Rejects BOJ Pressure Claims
Japan’s economic policy minister, Minoru Kiuchi, pushed back on Tuesday against reports that Tokyo was pressuring the Bank of Japan to keep interest rates low.
His comments came as investors focused on the government’s plans for large fiscal spending.
Markets are concerned that heavy spending could make Japan’s already high debt burden worse.
These fiscal worries have also weighed on the yen this year.
Dollar Holds Steady Ahead of Fed Minutes
The U.S. dollar was little changed in Asian trade after falling sharply last week.
The decline came after softer payrolls data raised questions about how much room the Federal Reserve has to raise interest rates this year.
Still, the dollar’s losses were limited. Investors continued to expect that sticky inflation could keep the Fed hawkish in the months ahead.
Fed Rate Outlook in Focus
Markets are now waiting for the minutes from the Federal Reserve’s June meeting, due on Wednesday.
The minutes could offer fresh clues about the path of U.S. interest rates.
Investors will also watch the tone of the minutes, as they are the first under new Fed Chair Kevin Warsh.
At the June meeting, more Fed policymakers supported raising interest rates this year.
Other Currencies Trade Quietly
Broader currency markets were mostly muted as traders waited for more economic data this week.
The euro and pound each slipped about 0.1% in early trade.
The Chinese yuan was flat against the dollar, with attention turning to June inflation data due on Thursday.
The Australian dollar edged lower, while the South Korean won strengthened as the USD/KRW pair fell 0.4% amid heavy selling in local equities.
Strait of Hormuz Tensions Weigh on Markets
Currency markets also remained cautious after renewed tensions in the Strait of Hormuz.
Reports that Iran had struck vessels in the key waterway pushed oil prices higher.
Rising oil prices added to concerns about inflation and broader market uncertainty.
