Japanese Yen Gains on Dollar Weakness

The Japanese yen climbed to around 159 per dollar on Monday, recovering some of last week’s losses as the dollar weakened following softer US economic data that eased concerns about an imminent Federal Reserve rate hike. Markets now see roughly a 67% probability that the Fed will hold rates in September, up from below 50% a month ago. The yen also advanced despite preliminary data showing Japan’s economy grew less than expected in the second quarter, as weak domestic demand outweighed robust exports. The economy expanded at an annualized 1.1% in Q2, below market expectations of 2%. Meanwhile, traders remain alert for further currency intervention by authorities amid persistent yen weakness. Markets are also speculating about a possible Bank of Japan rate hike in September or October, amid concerns that a weaker yen could fuel inflation.

The Japanese yen traded around 159.4 per dollar on Friday and was on track to lose about 1% for the week, as the absence of follow-up intervention from authorities encouraged speculators to continue betting against the currency. The yen has now retraced roughly half of the gains made in late July and early August, when Tokyo and Washington carried out record joint intervention. The currency remained under pressure from longer-term fundamentals, including wide interest rate differentials, growing fiscal concerns and elevated energy and import costs. Meanwhile, markets are speculating about a possible Bank of Japan rate hike in September or October amid concerns that a weaker yen will fuel inflation. US Treasury Secretary Scott Bessent also said Japan should reinforce currency intervention with policies and economic fundamentals that support the yen.

The Japanese yen traded around 159.3 per dollar on Thursday, hovering near the key psychological level of 160 per dollar and keeping traders on alert for further intervention from authorities amid persistent weakness. The currency remained pressured by longer-term fundamentals, including wide interest rate differentials, mounting fiscal concerns and elevated energy and import costs. The yen also struggled to gain momentum even after subdued US inflation data reduced pressure on the Federal Reserve to raise interest rates in the near term. In Japan, producer prices rose 7.2% in July, easing slightly from 7.3% in June and coming in below forecasts of 7.4%. Meanwhile, the Bank of Japan highlighted growing risks of accelerating inflation in its summary of opinions from the July meeting, with one board member suggesting that the pace of interest rate hikes could accelerate.