Yen Remains Under Pressure

The Japanese yen traded near 160.4 per dollar on Wednesday, remaining under pressure despite stronger-than-expected trade data and a recent interest rate increase by the central bank. Official figures showed Japan’s exports surged 17% year-on-year in May, the fastest pace since November 2022, supported by robust demand for automobiles and semiconductors. The data followed the Bank of Japan’s decision on Tuesday to raise its policy rate by 25 basis points to 1% in an effort to contain inflation and support the weakening currency. However, the move was not unanimously supported, with board member Toichiro Asada arguing that downside risks to growth and employment outweigh the upside risks to inflation. The yen has continued to face selling pressure in recent weeks as traders piled on short positions and engaged in carry trades, reflecting the still-significant interest rate differential between Japan and the US.

The Japanese yen strengthened toward 160 per dollar on Tuesday, recovering from the prior session’s decline after the Bank of Japan delivered a widely anticipated 25 basis point rate hike to 1%. The move highlighted policymakers’ intent to address inflation risks linked to the Iran conflict and support a persistently weak currency. However, some board members opposed the increase, with Toichiro Asada arguing that downside risks to output and employment outweigh upside risks to inflation. The yen has remained under sustained pressure in recent weeks as traders expanded short positions amid heavy carry trade activity, borrowing in the low-yielding currency to fund higher-yielding assets elsewhere. This dynamic reflects the still-wide interest rate gap between Japan and the US, which has largely offset the BOJ’s gradual tightening path and repeated intervention efforts by authorities in Tokyo.

The Japanese yen strengthened toward 160 per dollar on Tuesday, recovering from the previous session’s losses as investors awaited the Bank of Japan’s policy decision. The central bank is widely expected to raise its benchmark interest rate by 25 basis points to 1% in an effort to contain inflation and support the currency. The yen had faced sustained selling pressure in recent weeks as traders increased short positions amid persistent carry trades, borrowing in the low-yielding Japanese currency to invest in higher-yielding alternatives. The trend has reflected the wide interest rate differential between Japan and the US, which has largely offset the BOJ’s gradual policy tightening and repeated currency intervention efforts by Tokyo. Investors also continued to monitor geopolitical developments amid expectations that the US and Iran will sign a peace agreement in Switzerland on Friday, a move that could lead to the reopening of the Strait of Hormuz.