Yen Extends Rally on Intervention Fears

The Japanese yen slipped past 159 per dollar on Friday and was on track for a second consecutive weekly decline, as softer domestic inflation eased pressure on the Bank of Japan to tighten monetary policy in the near term. Japan’s core inflation rate slowed to 1.4% in April from 1.8% in March, marking its lowest level in four years and remaining below the central bank’s 2% target for a third straight month. At its April meeting, the BOJ sharply raised its core inflation forecast to 2.8% from 1.9%, citing elevated crude oil prices tied to the Middle East conflict and continued cost pass-through by businesses to consumers. The latest data also followed reports that PM Sanae Takaichi signaled openness to a supplementary budget aimed at addressing rising energy costs. Meanwhile, traders remained alert for possible currency intervention as the yen continued to trade near the 160-per-dollar level that reportedly triggered Tokyo’s intervention efforts in late April and early May.

The Japanese yen strengthened past 159 per dollar on Thursday, snapping its recent decline as oil prices and the US dollar weakened amid growing optimism over a potential peace agreement between the US and Iran. President Donald Trump said the US was in the final stages of negotiations with Iran, raising expectations that the strategically important Strait of Hormuz could soon reopen. On the domestic front, data showed Japanese exports rose 14.8% in April, exceeding forecasts on the back of solid demand from China, the US, ASEAN nations and the European Union. Meanwhile, the yen remained close to the key 160-per-dollar threshold that reportedly prompted intervention by Japanese authorities in late April and early May. Several officials in Tokyo recently indicated that policymakers could intervene in the foreign exchange market as often as necessary to stabilize the currency if excessive volatility persists.

The Japanese yen traded near 159 per dollar on Wednesday, remaining under pressure and hovering close to the key 160 level that reportedly triggered intervention by Japanese authorities in late April and early May to support the currency. Several officials in Tokyo recently suggested there may be no limit to how frequently authorities could step into the foreign exchange market if needed. Strong GDP data also reinforced expectations for a near-term rate hike from the Bank of Japan, with markets increasingly speculating on a possible move as soon as next month following hawkish remarks from policymakers. At the same time, the yen continued to face pressure from the prolonged Middle East conflict, which has kept oil prices elevated and intensified inflation concerns. The situation has boosted the dollar and US Treasury yields as investors increasingly bet that the Federal Reserve may still need to raise rates this year to contain inflation, adding further downside pressure on the yen.