Morning Bid: How much more yen jawboning before intervention?

A look at the day ahead in European and global markets from Rae Wee

Markets were set to end the week on a high on Friday as the artificial intelligence trade regained momentum, but more crucially for investors, attention will be on the yen and whether Tokyo could soon step in to prop up its currency.

Japanese Finance Minister Satsuki Katayama said on Friday Tokyo “won’t rule out any options” to counter the yen’s weakness, including potential coordinated intervention with Washington.

Her comments were the latest in a string of jawboning from authorities in Tokyo this week, in a bid to stem declines in the currency which is already down about 1% for the year thus far.

The yen rose on Friday, with its gains further bolstered by a Reuters report that some Bank of Japan policymakers see scope to raise interest rates sooner than markets expect. But it remains on the cusp of the key 160-per-dollar level after its fall to an 18-month low this week revived talk that intervention could be imminent.

The latest bout of yen weakness has come from the prospect of a snap election in Japan next month, where investors expect Prime Minister Sanae Takaichi could be handed a stronger mandate to pursue more stimulus.

But it remains to be seen how much yen weakness authorities are willing to tolerate, given its impact on the cost of importing fuel, food and various materials that could push up prices of broader consumer products.

Elsewhere, oil prices extended their steep declines from the previous session and safe-havens gold and silver halted their sparkling rally after U.S. President Donald Trump adopted a wait-and-see posture towards the unrest in Iran, having earlier threatened intervention.

Trump said he had been told that killings in Iran’s crackdown on protests were easing and that he believed there was no current plan for large-scale executions.

The U.S. dollar, meanwhile, held near a six-week high as investors pared back bets of Federal Reserve rate cuts this year following a slew of upbeat economic data on Thursday.

Markets are now pricing in a 67% chance that the Federal Reserve will stand pat on rates in April, up from 37% a month ago, according to the CME FedWatch tool. Odds for a steady outcome in June have also risen to 37.5%, compared to 17% last month.

Key developments that could influence markets on Friday:

– Fed’s Collins, Bowman, Jefferson speak

– U.S. industrial production (December)

– U.S. National Association of Home Builders’ (NAHB) housing market index (January)

(Editing by Jamie Freed)