NEW YORK, May 7 (Reuters) - The U.S. dollar slipped on Tuesday but strengthened against the Japanese yen as expectations of large interest rate differentials continued, even after new warnings from Japanese officials about their willingness to prop up their currency.
Japan's top currency diplomat Masato Kanda said the country may have to take action against any disorderly, speculative-driven foreign exchange moves, signaling the Bank of Japan (BOJ) remained ready to intervene in the market after two suspected interventions of possibly almost $60 billion last week.
"The big action last week and a little bit before was the BOJ, which has achieved some success, but there's nothing really to go on right now, so things are just sort of sitting still," said Joseph Trevisani, senior analyst at FX Street in New York.
Against the yen , the dollar strengthened 0.29% to 154.33 after tumbling more than 3% last week, its biggest weekly percentage drop since early December 2022.
Minneapolis Federal Reserve president Neel Kashkari said in a new essay that the strength of the housing market and potentially stalled progress on inflation mean monetary policy may not be as tight as Federal Reserve officials think it is.
The essay comes on the heels of comments from Fed officials on Monday that seemed to lean towards indicating the central bank's next move would be to lower interest rates.
With a light economic calendar this week, highlighted by the consumer sentiment reading from the University of Michigan on Friday, a host of Fed officials are due to speak, including Fed Governors Lisa Cook and Michelle Bowman later in the week.
"There isn't any consistent trend here other than what we've seen and that does not point to lower rates as much as various people in the market certainly and maybe even some people in the Fed itself would like," said Trevisani.
The dollar index was down 0.02% at 105.13, with the euro up 0.06% at $1.0773.
Following last week's Fed policy meeting and softer than expected U.S. jobs report, market expectations for two rate cuts this year increased, with expectations for a cut of at least 25 basis points in September currently at 65.7%, according to CME's FedWatch Tool, opens new tab.
The Australian dollar fell against the greenback after the Reserve Bank of Australia (RBA) kept rates steady and held back from taking a hawkish stance, although RBA Governor Michele Bullock cautioned inflation risks were on the upside, signaling policy was unlikely to be eased anytime soon.
The Australian dollar was down 0.12% versus the greenback at $0.6616 after falling as low as 0.6587.
Sterling weakened 0.1% at $1.2549 ahead of the Bank of England's policy announcement on Thursday, where interest rates are expected to be kept unchanged.
Reporting by Chuck Mikolajczak Editing by Mark Potter
