The yen is heading into the end of the week having surrendered nearly half of its intervention-driven gains, fueling speculation among traders that authorities may step into the market again.
The currency traded around 158.45 versus the dollar on Friday morning, well off the strong point of 155.23 reached on Monday. It had been near a four-decade nadir around 164 per dollar last week before the first joint yen-buying operation from Japan and the US since 1998.
The pullback underscores the limits of intervention in reversing the yen’s longer-term decline, with a wide interest-rate gap to the US, Japan’s high debt load and geopolitical uncertainty continuing to weigh on the currency. Meanwhile, the dollar on Thursday posted its biggest daily gain in two weeks as oil prices climbed, reflecting fading optimism that tensions in the Middle East would ease.
US and Japanese officials have warned investors they’re determined to keep defending the yen if needed.
“The possibility of another round of intervention is high especially as dollar-yen approaches 160,” said Moh Siong Sim, a strategist at the Oversea-Chinese Banking Corp. But “for intervention to be effective, it needs to be accompanied by faster BOJ rate hikes or a backdrop favoring Federal Reserve easing.”
While the Bank of Japan left its benchmark rate unchanged last week, overnight index swaps imply about a 60% chance of a rate hike by September. Japan’s top currency official, Atsushi Mimura, said authorities would respond to foreign-exchange moves in coordination with monetary policy.
What Bloomberg Strategists Say…
It’s a week on from the initial burst of intervention that triggered a USD/JPY swoon but already the focus is shifting back toward Treasury yields as the catalyst for a firmer dollar. FX traders have also seen a second failure to drive dollar-yen below 155, which is making Scott Bessent’s tactics look like a one-and-done event.
— Mark Cranfield, Markets Live Strategist. For the full analysis, click here.
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