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Yen under pressure; Aussie slides as inflation slows

(Reuters) - The yen struggled against most major currencies on Wednesday, hovering near a 15-year low against the euro as Japanese authorities did not rule out intervention to stem losses, while the Australian dollar dived lower as inflation eased in May.

Japanese authorities are under renewed pressure to combat the yen's fresh declines driven by market expectations that the Bank of Japan will keep interest rates ultra-low, even as other central banks tighten monetary policy to curb inflation.

"We are closely watching currency moves with a strong sense of urgency," Japan's top currency diplomat Masato Kanda told reporters on Wednesday.

"We will respond appropriately if it becomes excessive."

The yen was hovering around the seven-month low of 144.18 per dollar it touched overnight. It was last at 144.

Against the euro, the yen was pinned near the 15-year low of 157.93 it hit on Tuesday. Against sterling, the Asian currency was hovering around 183.25, just a shade below the 7.5-year low it touched on Tuesday.

"With the rise in the dollar against the yen set to run further, we judge the risk has increased the Ministry of Finance intervenes in the FX market by buying the JPY," said Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY).

"However, we note it is the speed of change, rather than the level, that matters most in the (Japanese finance ministry's) decision to intervene," Kong said.

Japan made forays into the currency market to prop up the yen last September and October to stem a plunge in the currency, which hit a 32-year low of 151.94 to the dollar.

While the yen is still well off that trough, many market players see 145 as Tokyo's line in the sand, which if breached could trigger another round of intervention

Meanwhile, the Australian dollar skidded to a three-week low of $0.6618 after the local consumer price inflation rate slowed to a 13-month low in May.

The Aussie was last down 0.64% at $0.66435. The kiwi fell 0.71% to $0.612

A measure of core inflation also cooled, in a sign interest rates might not have to rise again in July.

The yuan steadied against the dollar on Wednesday, a day after China's monetary authorities took forceful action to support the sliding currency for the first time in nearly eight months.

The offshore yuan was at $7.2348 per dollar. In the spot market, the onshore yuan opened at 7.2225 per dollar and was changing hands at 7.2285.

Overnight, data showed that U.S. consumer confidence increased in June to the highest level in nearly 1.5 years, while business spending appeared to hold up in May, indicating the economy remained on solid footing.

The latest slew of data reinforced views of a resilient U.S. economy and eased worries of a recession, though it also indicated that the Federal Reserve may have to continue raising rates.

Markets are pricing in a 77% probability of a 25 basis point hike by the Fed next month, according to CME FedWatch tool, but no more after that.

Against a basket of currencies, the dollar rose 0.068% to 102.57, after slipping 0.24% overnight. The dollar index is on course to log a decline of about 1.5% for the month.

Rodrigo Catril, senior currency strategist at National Australia Bank (OTC:NABZY), said U.S. data was feeding the theme of "sectoral recessions" occurring with different lags, making the Fed's job of taming inflation harder.

"Overall, the data is telling us the Fed needs to keep its foot on the tightening pedal," he said.

Investor attention will firmly be on Fed Chair Jerome Powell's comments at the European Central Bank Forum in Sintra, Portugal.

Powell will participate in a panel later on Wednesday alongside Bank of England Governor Andrew Bailey, European Central Bank President Christine Lagarde and Bank of Japan Governor Kazuo Ueda.

After spiking 0.5% higher on Tuesday, the euro eased 0.09% to $1.0949. Sterling last fetched $1.2729, down 0.13% on the day.

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