Yen holds most gains as intervention keeps speculators on edge

By Chibuike Oguh

NEW YORK, Aug 4 (Reuters) - The yen slipped on Tuesday but held on to most of its gains from last week's rare coordinated intervention by Tokyo and Washington.

The Japanese currency had rallied as much as 5% over the last three trading sessions, with Japan confirming coordinated yen-buying intervention on Friday with the U.S. in a rare move. 

The yen was last down 0.38% at 157.79 per dollar, paring some of its gains after hitting a three-month high of 155.20 the previous session but remaining well above its 40-year low of 163.99 touched in July.  

The joint action by Japan and the U.S. appears to be signalling to the market not to short the yen, said Axel Merk, chief investment officer at Merk Investments.  

"As most people would agree that interventions in the currency markets have a limited impact in the medium term. So I think it's about signalling and posturing to tell the market, 'Hey! Don't short the yen so much!'"   

Against the euro, the yen slipped 0.62% to 181.94, down from Monday's almost nine-month high of 179.435.    

Yen short positioning are still relatively elevated but are now particularly risky given risk of intervention by Japanese and U.S. monetary authorities, said TS Lombard analysts led by Daniel Von Ahlen in an investor note.

Two market sources told Reuters that the U.S. Treasury bought yen for euros last week instead of selling dollars, a highly unusual move likely aimed at helping Japan strengthen the yen without encouraging a view that Washington wants a softer dollar.

Monday's surge in the yen stirred speculation that Japanese authorities had intervened again, although officials offered no confirmation.

The underlying outlook of the yen has not changed, notwithstanding the unusual nature of multilateral currency interventions such as that by Japan and the U.S. — which tend to occur during periods of heightened market volatility, said BNP Paribas analysts led by Ishan Gurnani in an investor note.

"We are not yet convinced. While the risk–reward for long USDJPY is less attractive than it was before the intervention late last week, we still believe that the pair will end the year higher than current levels," the analysts said. 

DOLLAR STEADIES

The dollar edged lower against major currencies after recent losses triggered by the yen-buying intervention and a decline in oil prices.

Qatar said mediators were making progress in efforts to end the Iran war on Tuesday, although Tehran has denied President Donald Trump's assertion that talks are already under way.

The euro was up 0.20% against the greenback at $1.1531. Sterling strengthened 0.13% to $1.3451. 

Against the Swiss franc, the dollar weakened 0.14% to  0.8092.

The dollar came under pressure after the Federal Reserve held interest rates steady last week, with losses accelerating following the intervention to support the yen.   

The dollar index eased 0.13% at 99.88.

(Reporting by Chibuike Oguh in New York; Additonal reporting by Harry Robertson in London and Rae Wee in Singapore; Editing by Alexander Smith and Alistair Bell)