Yen Languishes at 40-Year Low

The Japanese yen hovered around 162.5 per dollar on Thursday, remaining at its weakest level in four decades and keeping traders on alert for possible currency intervention ahead of a US public holiday, when thinner market liquidity could magnify the impact of any official action. Finance Minister Satsuki Katayama said on Wednesday that authorities would respond appropriately to currency market developments at any time, reiterating previous warnings. The yen also stayed under pressure against the dollar even after Federal Reserve Chair Kevin Warsh said US inflation expectations had eased over the past month, signaling there was no urgency to raise interest rates. Meanwhile, investors remain skeptical that the Bank of Japan will accelerate policy tightening as it continues along its gradual normalization path, with persistent carry trades and still-wide interest rate differential between Japan and the US weighing on the yen.

The Japanese yen weakened past 162.5 per dollar on Wednesday, sinking to its lowest level in four decades and fueling speculation that authorities could intervene to support the currency. Traders are watching Friday’s US holiday as a potential opportunity for Tokyo to buy yen, as thinner market liquidity could amplify the impact of any intervention. The yen came under renewed pressure after fresh data highlighted the resilience of the US economy, reinforcing expectations that the Federal Reserve will raise interest rates this year. Meanwhile, investors remain skeptical about the Bank of Japan’s willingness to accelerate policy tightening as it continues its gradual normalization path. Persistent carry trades and sustained safe-haven demand for the US dollar also weighed on the yen. Additionally, Japan’s heavy reliance on Middle Eastern oil imports left its economy vulnerable to potential disruptions in regional energy supplies.

The Japanese yen weakened beyond 162 per dollar on Tuesday to its lowest level since 1986, raising concerns among policymakers and keeping investors alert for potential currency intervention by Tokyo. The yen remained under pressure as the wide interest rate gap between Japan and the US persisted, with the Bank of Japan continuing its gradual policy normalization while the Federal Reserve is expected to deliver multiple rate hikes this year. Ongoing carry trades and sustained demand for the US dollar as a safe-haven currency also continued to weigh on the yen. Meanwhile, Japan's economy remained exposed to disruptions in energy supplies due to its heavy dependence on Middle Eastern oil imports. On the economic front, industrial production in Japan rose less than expected in May, underscoring the impact of Middle East tensions on supply chains and energy costs.