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HONG KONG—Asian currencies weakened in trading on Monday, reversing some gains following Friday's U.S. jobs report that all but wiped out expectations the U.S. Federal Reserve would raise interest rates this month.

The yen weakened 0.5% to 107.089 against the U.S. dollar on Monday. It reached its strongest level against the greenback in a month late Friday, when the Japanese currency stood as strong as 106.35 against the U.S. dollar.

Friday's move erased all of the weakness the yen had seen during May, when the currency fell 4.1% to 110.68 by the month's end—the biggest one-month depreciation in a year-and-a-half. That helped reversed some gains in the yen since the Bank of Japan introduced negative interest rates at the end of January, a move that convinced some in the market that monetary policy had reached its limit.

Japan's Chief Cabinet Secretary Yoshihide Suga said Monday that the government is "closely watching movements in the market with careful attention," adding that sharp moves in currency markets weren't desirable.

Elsewhere on Monday, the Chinese yuan appreciated to as much as 6.5518 against the U.S. dollar. The People's Bank of China strengthened its yuan-fixing against the greenback by the most in five weeks.

But analysts were thrown off by the fact that the yuan didn't strengthen more in the wake of the dollar's selloff, prompting speculation that China's central bank is again quietly weakening its exchange rate.

Data released Friday showed the U.S. economy added just 38,000 jobs during May, far below the 158,000 expected by markets. That produced a surge for Asian currencies as investors pushed out their expectations of when the Federal Reserve will raise interest rates to later in the summer, leaving the U.S. dollar weaker accordingly.

Sue Trinh, head of Asia currency strategy at RBC Capital Markets in Hong Kong, said the weaker payrolls number and weaker dollar had boosted the yen the most, "given it's the most highly leveraged currency to Federal Reserve rate hike expectations," she said. Efforts by Japanese government officials to talk down the resurgent yen would be closely watched in the lead-up to the Bank of Japan's policy meeting ending June 16.

Also Monday, the Nikkei Stock Average sank as much as 1.9% before recovering later in the trading session, as investors bet that the stronger yen would weigh on the earnings of exporters. The index was last down 0.7%, paring declines as the weaker yen lifted stocks.

Chinese markets fluctuated between gains and losses in early trading. In Hong Kong, the Hang Seng Index fell 0.2%, while the Shanghai Composite was last flat.

For much of the past year, Beijing has stated that it would allow market forces to play a greater role in determining its exchange rate. However, considerable skepticism exists that policy makers are doing as they say.

Zhou Hao, senior emerging markets economist for Asia at Commerzbank, said the yuan should have been fixed stronger than what the market rate had suggested -- one indicator that Chinese policy makers are attempting to engineer weakness in the yuan.

"China is still trying to manage its currency and the exchange rate," he said. "China doesn't want to lose control and follow the market."

The yuan will likely trade in a broadly stable range for the next few weeks as Federal Reserve expectations are repriced. "Right now the renminbi isn't in focus; it's the U.S. that's in the spotlight," Mr. Zhou added, using another name China's currency is known by.

Following the U.S. nonfarm payrolls report, investors sharply reduced bets that the Federal Reserve would raise rates during the next two months. Fed fund futures priced in a 4% chance of a rate increase in June, compared with a 20.6% probability before the release of the employment figures, according to data from CME Group. The market views July as more likely, but expectations of an increase still fell from 58.4% to 31%.

Attention will turn Monday night in Asia hours to a speech by Fed Chairwoman Janet Yellen at the World Affairs Council of Philadelphia for signs of how the U.S. central bank views the latest employment data.

Megumi Fujikawa in Tokyo contributed to this article.

(END) Dow Jones Newswires

June 06, 2016 01:45 ET (05:45 GMT)

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