(Bloomberg) — The yen held steady near the key level of 160 per dollar on Wednesday, keeping investors on the lookout for more intervention by officials in the foreign-exchange market.
Japan’s currency was 0.1% weaker at 159.45 per dollar at 1:31 p.m. in New York. It has depreciated more than 1% in August, unwinding some of the US-Japanese efforts to strengthen the yen at the turn of the month.
The coordinated yen-buying came as the currency was flirting with its weakest levels in four decades, trading close to 164 per greenback. However, underscoring the limits of such efforts in the face of interest-rate differentials that favor the dollar, Japan’s currency has erased a chunk of its rebound, once again creeping toward the 160 area that has contained yen weakness in the past.
It’s “premature to declare the intervention threat” is over, said Nathan Thooft at Manulife Investment Management.
“Japanese authorities have already demonstrated a willingness to act, including coordinated action with the US Treasury, and levels approaching or exceeding the recent intervention zone are likely to keep traders cautious,” he said. “We definitely are still on intervention watch.”
Japan’s benchmark rate, at 1%, compares with the Federal Reserve’s target range of 3.5% to 3.75%. Traders see about a 60% chance of a rate hike by the Bank of Japan in September, with an October move fully priced in. For the Fed, traders see a rate increase by December as likely.
What Bloomberg strategists say…
“The yen’s path to a more durable recovery will ultimately depend on Bank of Japan policy tightening cadence and not sporadic intervention. The shrinking time gap between interest-rate hikes is the clearest sign yet that Japan’s reaction function is changing, albeit slowly.”
—Brendan Fagan, macro strategist, Markets Live
For the full analysis, click here.
“Confidence in Japan’s commitment to defending the yen improved after coordinated intervention with the US,” said Shusuke Yamada, a strategist at Bank of America. “However, as dollar-yen has rebounded without any intervention over the past week, that credibility appears to have eroded.”
Traders will look to a report on Japanese producer prices for July on Thursday. The measure likely rose at an annual pace of 7.4%, economists polled by Bloomberg forecast, up from 7.1% in June, which was the fastest pace since 2023.
“The yen’s weakness over the course of the year is likely to have been a key factor in driving up prices,” Stefan Grothaus at DZ Bank AG said about producer prices. “Expectations of interest rate rises in Japan, fueled by this, could provide the yen with a slightly further boost.”
(Updates pricing, adds comment about Japanese producer prices.)
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