Yen Holds Ground as Intervention Boost Fades; RBA Decision in Focus

The Japanese yen found its footing on Tuesday after a sharp decline in the previous session, as the impact of a rare joint U.S.-Japan intervention continued to fade. In Asian trading, the currency firmed to 158.93 per dollar, though it remained well off the three-month high of 155.20 reached last week following the coordinated yen-buying effort at the end of July.

The intervention came after the yen touched a 40-year low of 163.99 per dollar. However, the currency has since given back nearly half of those gains, leading traders to speculate that authorities may soon be forced to step in again. "The market is challenging the resolve of Japanese and U.S. officials," said Marc Chandler, chief market strategist at Bannockburn Capital Markets. Trading volumes were thinner than usual, with Japanese markets closed for a holiday.

Data from a U.S. regulator showed that speculators cut their bearish bets on the yen by the most in over 12 years, with net short positions falling by $8.865 billion to $3.604 billion in the week to August 4. Yet, as seen in previous intervention episodes, analysts suspect traders will look to rebuild those positions. ING strategists noted that a move back to 160.0 remains a tangible risk this month, even if September brings both a Bank of Japan rate hike and a hold from the U.S. Federal Reserve.

Markets are currently pricing in just over a 50% chance of a BOJ hike, according to LSEG data. The central bank's tightening path is also being complicated by rising political pressure to support the bond market.

Later in the day, investor attention shifts to the Reserve Bank of Australia's policy decision. The RBA is widely expected to hold its policy rate steady, with the focus on any commentary from policymakers. The Australian dollar stood at $0.7057, near an eight-week high. Carol Kong, currency strategist at Commonwealth Bank of Australia, said the RBA is likely to stress that inflation remains elevated and that it is prepared to raise the cash rate again if necessary. She added that softer inflation and housing market weakness give the central bank room to assess the lagged effects of earlier tightening.

The U.S. dollar was steady against most major currencies as oil prices hovered near one-week highs, with hopes fading for a U.S.-Iran deal to end the Middle East conflict. The euro fetched $1.1544, while sterling traded at $1.3509.

Looking ahead, Wednesday's U.S. consumer price index data will be closely watched for signs of how the war is affecting pricing pressures. Producer price data follows on Thursday, with retail sales figures due on Friday.