Dollar barges past 161 yen and eyes quarterly rise

The dollar was headed for a second straight quarterly gain and jumped to a near four-decade high on the battered yen in Asia trade on Friday, ahead of a crucial U.S. inflation reading.

Neither an overnight drop in U.S. yields nor data showing solid consumer price gains in Tokyo could arrest the downward slide in Japan's currency, which sank to its weakest since 1986 at 161.155 per dollar.

For the quarter it is down 6% on the dollar and for the year so far it has lost 12% - the largest fall of any G10 currency. At 172.37 per euro it traded at a lifetime low on the common currency as yen bears test authorities' resolve.

Low Japanese interest rates have encouraged selling yen for higher-yielding currencies, known as a "carry trade", even as Japanese yields have started to rise and Japanese officials have warned of another round of currency intervention.

"The thirst for carry in a low volatility environment remains," said National Australia Bank's head of foreign exchange strategy, Ray Attrill, in Sydney.

"Having gone through 160 (per dollar) without intervention, I don't think the market is as fearful as it might have been in the run-up to 160."

Core inflation in Japan's capital accelerated in June, data showed on Friday, stoking expectations for a few small interest rate hikes over the second half of 2024.

Elsewhere, the dollar was firm in the Asia morning as the first U.S. presidential debate between Republican candidate Donald Trump and Democratic President Joe Biden began in Atlanta.

The euro dipped 0.1% to $1.0691 and sterling eased slightly to $1.2626. The Australian dollar was down 0.4% to $0.6623, though headed for a gain of about 1.6% on the quarter, as sticky inflation has dashed expectations for Aussie rate cuts anytime soon. [AUD/]

The New Zealand dollar dipped 0.3% to $0.6065 on Friday, but was up 1.5% for the quarter. The U.S. dollar index was 0.2% stronger at 106.07 on Friday for a 1.5% quarterly rise.

The dollar's strength and the U.S. balance sheet were possible topics for Biden and Trump's debate though NAB's Attrill said many market participants would be watching to see whether Biden was sharp on his feet and up to the task.

Later in the day traders are keenly awaiting the U.S. personal consumption expenditures price index, the Federal Reserve's preferred inflation measure and expect annual growth eased to 2.6% in May, its slowest in more than three years.