Asia FX weakens as yen volatility spurs caution; dollar dented by soft CPI

investing.com:

Investing.com-- Most Asian currencies fell slightly on Friday as traders turned cautious amid increased volatility in the Japanese yen, which sparked speculation over whether the government had intervened in markets.

Losses in regional units were muted as the dollar steadied at a one-month low, after softer-than-expected U.S. consumer price index inflation data ramped up optimism over interest rate cuts. 

But sentiment towards Asia was held back by volatility in the yen, while markets also digested mixed trade figures from China.

The Japanese yen was volatile in Friday trade, with the USDJPY pair rising 0.2% to about 159.18 yen.

The pair slid over 2% on Thursday after the soft U.S. CPI report, dropping from levels close to a 38-year high, which it had hit earlier in July.

But the sharp drop in the yen sparked questions over whether the Japanese government was actively intervening in currency markets. Officials gave scant cues on the matter, even after offering a string of warnings in recent weeks over betting aggressively against the yen.

Data on the Bank of Japan’s balance sheet, due later in July, is expected to offer more clarity on whether the government did intervene. Traders also speculated whether short positions on the yen were squeezed by a sharp decline in the dollar, following the weak CPI reading for June. 

The dollar index and dollar index futures steadied on Friday after tumbling to a one-month low in overnight trade.

The greenback was battered by softer-than-expected CPI data, which showed inflation cooled a smidge more than expected in June. 

The reading ramped up bets that the Federal Reserve will have more confidence to begin cutting interest rates.

Traders were seen pricing in a 83.4% chance the Fed