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By Ankur Banerjee
SINGAPORE, July 4 (Reuters) - The yen was firm on Tuesday but remained vulnerable to more weakness, as markets were on alert for signs of intervention, while the Australian dollar dropped after the country's central bank chose to stand pat on interest rates.
The Reserve Bank of Australia (RBA) held interest rates steady at 4.10%, saying it wanted more time to assess the impact of past hikes, but warned further tightening might be needed to bring inflation to heel.
Across the currency markets, investors remained on watch for possible intervention by Japanese authorities to stem yen losses.
The yen last fetched 144.64 per dollar in Asian hours, but remained close to last week's eight month low of 145.07 per dollar that prompted Finance Minister Shunichi Suzuki to warn against excessive yen selling.
Earlier on Tuesday, Japan's top financial diplomat Masato Kanda said that officials were in close contact with U.S. Treasury Secretary Janet Yellen and other overseas authorities almost everyday on currencies and broader financial markets.
"This is sending signals that a coordinated intervention may be coming as yen continues to hover above 144 per dollar," said Charu Chanana, market strategist at Saxo Markets.
"A coordinated intervention usually has a longer lasting impact on the yen than a unilateral intervention would have."
Japan bought yen in September, its first foray in the market to boost its currency since 1998, as the Bank of Japan's pledge to retain ultra-loose policy as long as required drove the yen as low as 145 per dollar. It intervened again in October after the yen plunged to a 32-year low of 151.94.
The Australian dollar slid 0.3% to $0.6654 after the RBA's decision, reversing its early morning gains.
"The RBA’s steady hand is probably only a flesh wound for the Aussie, having been about 60% priced in and with no great rhetorical shifts in the statement," said Sean Callow, a senior currency strategist at Westpac.
Markets had leant toward a steady outcome given inflation had eased a little more than expected in May, while economists were split on the outcome, with 16 out of 31 polled by Reuters expecting a hike and the rest forecasting the bank to stand pat.
Since a surprise pause in April and subsequent hikes in May and June, economists have been mostly divided in recent months over the RBA's next move.
Against a basket of currencies, the dollar rose 0.097% at 103.05 after data overnight showed U.S. manufacturing slumped further in June, reaching levels last seen when the nation was reeling from the initial wave of the COVID-19 pandemic.