Yen Stays Under Pressure Despite Strong PPI Data

The Japanese yen traded around 160.3 per dollar on Wednesday, lingering near its weakest level since July 2024 even as the country’s wholesale inflation accelerated at the fastest pace in three years on the back of soaring energy prices. Japan’s producer prices rose 6.1% in May from a year earlier, following an upwardly revised 5.3% increase in April and exceeding market expectations of a 5.5% gain. The latest data strengthened expectations that the Bank of Japan will raise interest rates next week as policymakers contend with mounting inflationary pressures fueled by the Middle East conflict and the yen’s sharp depreciation. Investors are also looking for hawkish signals from BOJ Governor Kazuo Ueda, with markets increasingly speculating on another rate hike in September and the possibility of a third increase in December.

The Japanese yen weakened beyond the 160-per-dollar mark, crossing a level widely seen by markets as a potential trigger for another round of currency intervention by Japanese authorities. The currency remained under pressure as a stronger US dollar gained support from a better-than-expected US jobs report, which reinforced expectations that the Federal Reserve could raise interest rates later this year. However, safe-haven demand for the greenback eased after Iran and Israel agreed to halt strikes against each other. Meanwhile, data released on Friday showed Japan’s foreign reserves recorded a record monthly decline in May as the government sold foreign assets to finance its largest-ever currency intervention a month earlier. On the monetary policy front, the Bank of Japan is widely expected to raise interest rates later this month as policymakers contend with persistent inflationary pressures driven by higher energy costs.

The Japanese yen traded near 160 per dollar on Friday, hovering around the closely watched level for a third straight session and prompting renewed verbal intervention from Japanese authorities. PM Takaichi said the government aims to strengthen confidence in the yen by improving economic fundamentals, emphasizing policies that encourage domestic investment, reinforce supply chains, and enhance growth potential. Meanwhile, Finance Minister Satsuki Katayama reiterated that authorities stand ready to step into the foreign exchange market if necessary and remain in close contact with US officials. Data released on Friday showed Japan’s foreign reserves fell at a record pace in May as Tokyo sold foreign assets to fund its largest-ever currency intervention a month ago. On the policy front, BOJ Governor Ueda said the central bank should carefully assess the costs and benefits of raising interest rates if inflation risks begin to outweigh downside risks to economic growth.