By Kevin Buckland

TOKYO (Reuters) - The yen continued to drift lower against the dollar on Tuesday as gaping interest rate differentials weighed on the currency, despite fresh warnings from Japanese officials following two rounds of suspected dollar-selling intervention last week.

The Australian dollar hovered close to a two-month high versus its U.S. counterpart with the Reserve Bank of Australia widely expected to keep rates steady later in the day, and traders on watch for a more hawkish stance from Governor Michele Bullock.

The U.S. dollar gained 0.22% to 154.235 yen in early Asian trading, adding to its 0.58% rally from Monday.

On Friday, it sank as low as 151.86 yen for the first time since April 10, as softer-than-expected monthly U.S. jobs data added to the losses following what Bank of Japan data suggested may have been a total of some 9 trillion yen ($58.37 billion) in official intervention.

Japan's Ministry of Finance has refrained from commenting on whether it was behind the dollar selling, but top currency diplomat Masato Kanda repeated on Tuesday that the government "will continue to take the same firm approach" to disorderly yen moves.

However, with a Federal Reserve rate cut likely to take some time and the BOJ taking a cautious approach to tightening following its first rate hike since 2007 in March, the gap between ultra-low Japanese long-term yields and their U.S. counterparts is a vast 370 basis points.

"USD/JPY likely remains attractive to market participants because of the still wide U.S.‑Japan interest rate differentials and healthy risk appetite," Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY), wrote in a client note.

"The risk is USD/JPY creeps back up and forces Japan's Ministry of Finance to intervene," but barring that, the dollar is likely to see a period of consolidation into the Bank of England policy decision on Thursday, she said.

The U.S. dollar index - which measures the currency against six major peers, including the yen, sterling and euro - was little changed at 105.13, after dipping as low as 104.52 on Friday.

The euro was steady at $1.0765 and sterling was flat at $1.2565.

The Aussie edged up 0.17% to $0.6636, heading back towards the high of $0.6650 from Friday, a level last seen on March 8.

All but one of the 37 economists surveyed in a Reuters poll expect the RBA to keep rates on hold, with the other predicting a quarter point rate hike, amid stubbornly high inflation.

At the RBA's last meeting in mid-March, policymakers watered down their tightening bias, although Bullock declined to say whether policy has shifted to neutral, saying risks were "finely balanced", and pushed back immediate rate cuts.

"A different set of central bankers would have had the policy rate higher sooner on the same set of data," Taylor Nugent, a markets economist at National Australia Bank (OTC:NABZY), wrote in a note.

"The RBA's stripes as a reluctant hiker have left the near-term risks from May to August to a hike rather than a cut, even at this late stage of the tightening phase."

($1 = 154.2000 yen)

By Satoshi Sugiyama

TOKYO (Reuters) -Japan may have to take action against any disorderly, speculative-driven foreign exchange moves, the government's top currency diplomat Masato Kanda said on Tuesday, reinforcing Tokyo's readiness to intervene again to support a fragile yen.

"It is preferable for exchange rates to remain in a stable manner following fundamentals, and if the market is functioning soundly in this way, there is of course no need for the government to intervene," Kanda, Japan's vice minister of finance for international affairs, told reporters.

"However, when there are excessive fluctuations or disorderly movements due to speculation, the market is not functioning and the government may have to take appropriate action. We will continue to take the same firm approach as we have in the past."

Tokyo is suspected to have intervened on at least two separate days last week to support the yen after it tumbled to lows last seen more than three decades ago.

Bank of Japan data suggested authorities spent more than 9 trillion yen ($58.4 billion) in defence of its currency, helping lift the yen from a 34-year low of 160.245 per dollar to a roughly one-month high of 151.86 over the span of a week.

The yen was last trading around 154.27 in early Asia.

Japan is reluctant to intervene in the currency market considering its limited available dollar cash reserves and U.S. Treasury Secretary Janet Yellen's comments that such moves were acceptable only in rare circumstances, said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

By Howard Schneider

COLUMBIA, South Carolina (Reuters) -Finishing the battle against inflation will likely require a hit to demand, after a year in which U.S. price pressures cooled largely through improvements in the supply side of the economy with virtually no change in the unemployment rate, Richmond Federal Reserve President Thomas Barkin said on Monday.

"We got a lot of benefit last year on the supply side," Barkin said, noting a rise in immigration and a jump in productivity as forces that allowed the economy to grow fast and add jobs while allowing inflation to fall quickly.

But with the pace of price increases possibly stalled at a rate above the Fed's target, "I do tend to imagine that we're going to need a little more edge off of demand to get all the way" back to target, Barkin said in comments to reporters after an event at the Columbia Rotary Club.

He said he is "optimistic" that the current level for the benchmark policy rate, held in a range of from 5.25% to 5.5% since July, will be adequate to do the job, and that he doesn't see the economy overheating.

But he also said his sense of the risks facing the Fed are weighted towards inflation proving tougher to tame than expected.

"I still have the weight going toward inflation," Barkin said. "It's a stubborn road back...It doesn't mean you won't get it back. It just means it takes a while...to corral price setters into believing they don't really have a chance" for aggressive increases.
 

Barkin is a voter this year on interest rate policy, and supported the Fed's decision at its meeting last week to hold rates steady.

His comments about demand suggest that the final phase of inflation control may hinge on the sort of blow to economic growth - and by implication the job market - that policymakers have been hoping to avoid.

As of March the Fed's preferred measure of inflation, the personal consumption expenditures price index, was rising at a 2.7% annual rate - far below the peaks seen in 2022, but largely stalled through the first months of the year.

Barkin said he still viewed demand in the economy as strong, but added that the sort of slowdown needed to finish the Fed's inflation battle needn't be all that deep.

"If the economy does cool, it doesn't need to be as painful" as the sharp slowdown seen from 2007 to 2009, for example, he said.

Because the economy seems so resilient, with the unemployment rate at 3.9% and job growth perhaps beginning to fall more in line with pre-pandemic levels, Barkin said the Fed could afford to wait and be sure inflation will resume its decline.

The start of the year "has only confirmed the value of the Fed being deliberate," said Barkin in his address. "The economy is moving toward better balance, but no one wants inflation to reemerge. We have said we want to gain greater confidence that inflation is moving sustainably toward our 2% target. And given a strong labor market, we have time to gain that confidence."

(Reuters) - U.S. banks reported renewed weakening in demand for industrial loans and a decline in household demand for credit in the first quarter of the year, according to a Federal Reserve survey of senior loan officers published on Monday.

Fed officials had the survey results in hand last week when they decided to keep the policy rate steady in the 5.25%-5.5% range and said they plan to hold them there as long as needed to bring down inflation.

Monetary policy tightening typically works to ease price pressures through credit channels, with higher borrowing costs reducing demand for loans. 

That process appeared to be ongoing during the first quarter, with the exception of commercial real estate lending, where signs pointed to some improvement in credit supply and demand.

"Many consumers and businesses are feeling the pinch from reduced credit availability even as the Fed looks set to keep interest rates higher into 2025," wrote Nationwide economist Ben Ayers. "This could set the stage for weaker activity ahead and makes the economy more susceptible to an unexpected shock."

The net share of large and medium-sized banks reporting tightening standards for commercial and industrial loans ticked up to 15.6%, from 14.5%, the survey showed. A rising share of banks reported weaker demand for C&I loans.

For commercial real estate loans of all types, however, the share of banks tightening standards shrank to the lowest in two years. A declining share reported weaker demand for CRE loans; foreign banks reported an overall rise in demand for CRE loans.

For households, a rising share of banks reported tightening standards for auto loans, while a shrinking share of banks did so for credit cards and other types of consumer loans, the survey showed.

Household loan demand deteriorated across all categories, the survey showed, with demand for auto loans at its weakest in a year.

By Faith Hung

TAIPEI (Reuters) - Money is pouring into Taiwan exchange-traded funds as investors scramble for exposure to the artificial intelligence supply chain, raising analyst and regulator caution just as a rally in the sector has turned fickle and volatile.

The rush into exchange-traded funds (ETFs) has changed the ownership structure of a $2 trillion dollar market that sits at a geopolitical flashpoint.

Regulators and ETF managers fear less sophisticated investors tapping into the AI fever could end up in pain if markets sour or tensions flare with China, which views democratically governed Taiwan as its own territory.

As of March, Taiwan's ETF sector was valued at T$4.74 trillion ($145.8 billion), according to data from the island's Financial Supervisory Commission (FSC).

That is up 77% from a year earlier, against a rise of 20% in the value of the benchmark equity index over the same period, pointing to heavy inflows.

The speed of the investment, and the borrowed money that much of it rests on, has helped drive the market higher. Money managers say it also raises the risk of an outsized reversal.

"Our clients have concerns. Taiwan stocks have risen above 20,000 points. How much higher can they go?" said Peter Yang, manager of an ETF launched by Fuh-Hwa Securities Investment Trust.

The ETFs include broad index trackers, dividend funds and thematic and sector funds and are popular with foreign and local investors alike. Stability risks were on display when Middle East tensions and a warning of restrained global demand from market leader TSMC set off a wave of chip stock selling.

On April 19 the benchmark index ended down 3.8%, losing 774 points, the most it has lost in a single day. Stock exchange data showed the second-largest net selling by foreign investors on record, with ETFs among four of the top ten most-sold stocks: Yuanta Taiwan High Value Dividend ETF, UPAMC Taiwan High Dividend Momentum ETF, Fuh Hwa Taiwan Technology Dividend Highlight ETF and Capital TIP Customized Taiwan Select High Dividend ETF.

Regulators are watching.

"Our attitude is cautious," Hwang Howming, a vice director-general of the FSC, Taiwan's top financial regulator, told Reuters. "We want to ensure that investors' interests, including in ETFs, are protected."

CRAZE

Taiwanese media have carried reports of students and even Buddhist nuns using ETFs to play the stockmarket and investors mortgaging their houses to get in on the rally.

Frank Hung, a Taipei hotel manager who has found a so-far lucrative side-hustle dabbling in ETFs, considers them a convenient investment in which he sees little risk.

"It's an investment that flies high on the AI boom, offers high yields, and suits busy people like me," he said.

To be sure, the ETF craze reflects one of the easiest ways to access a market that is seen as offering profitable exposure to the raw computing materials that big tech firms have promised to buy as they seek to grow artificial intelligence businesses.

"Generally investors see ETFs as investments that will always be profitable. That is not necessarily correct," said Peter Hong, manager of Capital TIP Customised Taiwan High-Tech Dividend & Growth ETF.

"However, in the longer term, Taiwan and U.S. ETFs in this sector can be expected to reliably trend upwards because of the tremendous potential of new applications such as AI," Hong said.

Yet if the rally, which has faltered, starts to turn, then those who bought ETFs in the good times may be the first out the door, or the over-leveraged might get trapped in investments they can no longer afford.

"ETFs mostly track the broader market, making them vulnerable and unprotected when there is volatility in the market," said Adrian Wang, a senior vice president of Cathay Securities Investment Trust.

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. job growth probably slowed to a still-solid clip in April, with wages maintaining their steady rise, which would allay fears that the economy was stalling after activity pulled back considerably in the first quarter.

The Labor Department's closely watched employment report on Friday is also expected to show the unemployment rate holding below 4% for the 27th straight month. Labor market endurance, however, leaves the Federal Reserve in no rush to start cutting interest rates, which could significantly slow down the economy.

The U.S. central bank on Wednesday left its benchmark overnight interest rate unchanged in the current 5.25%-5.50% range, where it has been since July.

"The bloom is off the rose of a strong employment market, but it's still pretty," said Sung Won Sohn, finance and economics professor at Loyola Marymount University. "A slow, but healthy job market will continue well into 2025. The only situation where I see a dramatic decline will be if the Fed keeps rates high for too long."

Nonfarm payrolls likely increased by 243,000 jobs last month after rising 303,000 in March, according to a Reuters survey of economists. Job gains would be slightly below the 276,000 monthly average in the first quarter.

Estimates ranged from 150,000 to 280,000. The labor market has so far defied predictions of a sharp slowdown flagged by surveys including the Institute for Supply Management and the NFIB. The ISM's services employment measure has been largely weak since last October.

The NFIB's gauge of small business hiring slumped to near a four-year low in March before rebounding in April.

Most economists have, however, cautioned against reading too much into the surveys, arguing that they have not offered reliable signals on nonfarm payrolls over a long time. They were also not perturbed by a near stall in worker productivity in the first quarter, noting that the trend remained solid.

"I don't see any real signs of distress," said Dan North, senior economist at Allianz (ETR:ALVG) Trade.

UNEMPLOYMENT RATE SEEN STEADY

Economists were also dismissive of the continued decline in temporary help staffing, normally viewed as a harbinger for future hiring. Temporary help has dropped in 23 of the last 24 months. They noted that companies continued to hoard workers.

Employment gains have been driven by healthcare, state and local governments, construction sectors as well as the leisure and hospitality industry, which are trying to boost staffing levels after losing workers during the COVID-19 pandemic.

That pattern is expected to hold in April.

Average hourly earnings are forecast rising 0.3%, matching March's gain. There is, however, an upside risk as about half a million workers at California fast food chains started receiving a $20-an-hour minimum wage in April.

"We would normally look for another increase of 0.3%, which was the monthly average in both the fourth quarter of 2023 and the first quarter of 2024," said Lou Crandall, chief economist at Wrightson ICAP (LON:NXGN). "However, we expect the increase in the minimum wage for fast-food workers in California to translate into an increase of nearly 1% in hourly earnings in the leisure and hospitality industry in April, which would nearly add a tenth of a percent to the national average."
 

Wages are forecast increasing 4.0% in the 12 months through April after rising 4.1% in March. Wage growth in a 3%-3.5% range is seen as consistent with the Fed's 2% inflation target.

Financial markets continue to expect the central bank to start its easing cycle in September. A minority of economists believe the window is closing. Since March 2022 the U.S. central bank has raised its policy rate by 525 basis points.

The unemployment rate was forecast unchanged at 3.8% in April. The labor market has benefited from a surge in immigration over the past year, which economists estimated boosted labor supply by about 80,000 per month in 2023.

"While we believe the continued flow of new immigrants into the labor market boosted payroll and household employment in April's report, we do not forecast an impact on the unemployment rate due to the offsetting boost to labor supply," said Spencer Hill, an economist at Goldman Sachs.

By Mayela Armas

CARACAS (Reuters) - The Venezuelan government is aiming to make up for the return of U.S. oil sanctions by raising tax revenues so it can increase spending on public workers and secure their support in July's elections, public and private sector sources said.

Washington reimposed broad oil sanctions in April in response to what it said was President Nicolas Maduro's failure to meet electoral commitments inked last year with the opposition.

The renewed restrictions mean companies must seek individual licenses from the U.S. to operate in Venezuela, slowing efforts to increase crude production and hitting government coffers ahead of the July 28 contest, where Maduro is seeking his third re-election.

The government is seeking to make up the shortfall via fresh tax revenue efforts, three sources with knowledge of the matter told Reuters. The sources said the Maduro administration wants to slightly increase social spending and boost bonuses for public employees, who earn significantly less than private employees and have not had a pay raise for two years.

Some opinion polls have shown strong voter support for the opposition, which named Edmundo Gonzalez as its unity candidate after first-choice Maria Corina Machado was barred from public office.

"We must insist on reaching the goal of doubling income from taxes and we will achieve it," Maduro told business people in an April speech.

A public sector source who asked to remain anonymous said the government was "looking to cover the difference created by less oil income with more tax revenue."

Spending was being evaluated at a level that would not stoke inflation, which remains "the worry" of the government, the source said.

Neither the communications or finance ministry responded to a request for comment.

Maduro's government this year has intensified efforts to bring inflation down to two digits, holding the exchange rate steady and weighing how to spend on social programs without stoking consumer price rises.

EARLY TAXES

In order to raise the tax take, the Maduro government has been conducting frequent audits of private sector companies, reviewing receipts and sometimes applying fines, business and official sources said.

Officials are also asking businesses to pay some taxes earlier than planned and looking to expand the number of contributors, the sources added.

Tax agency Seniat did not respond to a request for comment.

"We must be more efficient in tax collection and more meticulous with our audits," said ruling party lawmaker Jose Vielma, a member of the government-allied national assembly's finance committee.

Maduro said on Wednesday his government would also propose a law to increase pension contributions by businesses.

Tax take was up to $2.2 billion in the first quarter, according to official figures, a 57% increase over the same period last year, growing in tandem with increased oil income. Total year-to-date tax take rose to $3.1 billion through April, Maduro said on Wednesday.

But oil income - around $1.7 billion per month between January and April - will fall by some $370 million per month now the oil sanctions are back in place, according to estimates by independent analyst firm Sintesis Financiera.

Government officials have told business leaders that tax revenue must reach $8 billion this year, one private sector source said, up from a $5.87 billion estimate in this year's budget.

"Spending has begun to increase and it's possible (the government) will sacrifice exchange rate and inflation stability in the next three months," said Asdrubal Oliveros of analyst firm Ecoanalitica.

Annual inflation was 67.75% through March, according to the central bank.

By Rae Wee

SINGAPORE (Reuters) - The yen was headed for its best week in more than a year on Friday, helped by Tokyo's suspected intervention this week to pull the Japanese currency away from 34-year lows, which also left the dollar broadly on the back foot.

The yen rose to a session-high of 152.895 per dollar in early Asia trade and was set to clock a weekly gain of more than 3%, its largest since December 2022. It was last more than 0.4% stronger at 152.96 per dollar.

Traders were left on tenterhooks for any further huge swings in the yen after Tokyo is suspected to have intervened to support its currency this week to the tune of some 9.16 trillion yen ($59.79 billion), as suggested by data from Bank of Japan (BOJ).

Japan's latest forays into the currency market came during periods of thin liquidity, with the country out for a holiday on Monday while the second attempt happened late on Wednesday after Wall Street had closed.

"Calculated and opportunistic market action for maximum effect is preferred. And the (Ministry of Finance) is practiced in this. What's more, the element of unknown and surprise are key advantages that the BOJ and MoF will want to retain," said Vishnu Varathan, chief economist for Asia ex-Japan at Mizuho Bank.

The yen has strengthened nearly eight yen against the dollar since the start of the week, when it first slid past the key 160 per dollar level which some have said could be the line in the sand for authorities.

Elsewhere, the dollar lost ground against most of its peers and was headed for its worst week in nearly two months, in part due to the sharp rise in the yen this week.

Traders are now looking to U.S. nonfarm payrolls data due later on Friday to guide the dollar's next moves, after Federal Reserve Chair Jerome Powell told markets this week that the central bank's next move in interest rates would likely be down, and not up as some had feared.

The Fed held interest rates steady at the conclusion of its two-day monetary policy meeting, as expected, and signalled it is still leaning towards eventual rate cuts, even if they may take longer to come than initially expected.

The euro ticked up 0.05% to last trade at $1.0730, and was eyeing a weekly gain of 0.35%. Sterling steadied at $1.25365 and was similarly set to rise more than 0.3% for the week.

Against a basket of currencies, the dollar, which has struggled to regain its footing in the wake of the less-hawkish-than-feared Fed comments, was little changed at 105.32.

The dollar index was on track to lose 0.7% for the week, its worst performance since March.

"Recent Fed speech has acknowledged the lack of progress on inflation and the desire to maintain the current level of policy rates for longer. That said, it does seem clear the Committee remains biased to cut rates, but any policy easing will be determined by how inflation develops over the next few months," said Tai Hui, APAC chief market strategist at J.P. Morgan Asset Management.

"We now expect the Committee to reduce rates 1-2 times this year, with risks skewed to fewer cuts."

Down Under, the Australian dollar edged 0.07% higher to $0.6570, and was on track to gain nearly 0.6% for the week.

The New Zealand dollar tacked on a marginal 0.03% to $0.5963, and was eyeing a 0.4% weekly gain.

($1 = 153.2100 yen)

WASHINGTON (Reuters) - U.S. worker productivity growth slowed sharply in the first quarter, resulting in a surge in labor costs, but the trend in productivity remained solid.

Nonfarm productivity, which measures hourly output per worker, increased at a 0.3% annualized rate last quarter after rising at a 3.5% pace in the October-December period, the Labor Department's Bureau of Labor Statistics said on Thursday.

The government on Friday corrected productivity data from 2019 through 2023 due to a computation error.

Economists polled by Reuters had forecast productivity would increase at a 0.8% rate.

Productivity advanced at a 2.9% pace from a year ago. Economists are keeping an eye on productivity to gauge how quickly labor costs can rise without re-igniting inflation. Labor costs and inflation surged in the first quarter.

The Federal Reserve on Wednesday kept its benchmark overnight interest rate unchanged in the current 5.25%-5.50% range, where it has been since July.

Fed Chair Jerome Powell told reporters that "in recent months, inflation has shown a lack of further progress toward our 2% objective." Since March 2022 the U.S. central bank has raised its policy rate by 525 basis points.

Unit labor costs - the price of labor per single unit of output - jumped to a 4.7% rate in the January-March quarter after being unchanged in the prior quarter. Labor costs increased at a 1.8% pace from a year ago.

Compensation shot up at a 5.0% rate last quarter after rising at a 3.5% pace in the October-December quarter. It increased at 4.7% rate from a year ago.

By Leigh Thomas

PARIS (Reuters) - The global economy is growing faster than expected only a few months ago thanks to resilient U.S. activity while inflation is converging more quickly than expected with central banks' targets, the OECD said on Thursday, upgrading its outlook.

The global economy would maintain the 3.1% growth rate seen last year and pick up marginally to 3.2% next year, the Organisation for Economic Cooperation and Development said, upgrading forecasts dating from February for growth of 2.9% this year and 3% in 2025.

A faster than expected fall in inflation set the stage for major central banks to begin rate cuts in the second half of the year while also fuelling gains in consumers' incomes, the OECD said in its latest Economic Outlook.

However, the speed of recoveries diverged widely, the OECD warned, saying lingering sluggishness in Europe and Japan was being offset by the United States, whose growth forecast was hiked to 2.6% this year from a previous estimate of 2.1%.

Next year U.S. growth was expected to cool to a rate of 1.8%, up slightly from 1.7% in February.

Boosted by fiscal stimulus, China's economy was also expected to grow faster than expected with its growth now forecast at 4.9% in 2024 and 4.5% in 2025, up from 4.7% and 4.2% respectively in February.

While weakness in Germany would continue to weigh on the broader euro zone, the bloc's growth was projected to pick up from 0.7% this year to 1.5% next year as lower inflation boosts households' purchasing power and paves the way for rate cuts. The OECD had previously forecast euro zone growth of 0.6% this year and 1.3% in 2025.

Britain's outlook was one of the few to be downgraded with the OECD now forecasting only 0.4% this year compared with 0.7% previously. As interest rates start coming lower from the third quarter of this year, UK growth was seen picking up to 1% in 2025, compared with 1.2% expected in February.

Meanwhile, in Japan, income gains, easy monetary policy and temporary tax cuts would help its growth rate to accelerate from 0.5% in 2024 to 1.1% in 2025, compared with forecasts of 1% for both years previously, the OECD said.