Japanese Yen Stays Range-Bound

The Japanese yen traded around 159.5 per dollar on Wednesday, remaining range-bound for more than a week now after giving back about half of the gains made following the joint intervention by Tokyo and Washington at the end of July. The currency continues to face persistent weakness due to wide interest rate differentials, growing fiscal concerns and elevated energy and import costs. On the monetary policy front, traders are increasingly speculating on a Bank of Japan interest rate hike in September to support the yen and curb inflation. Japan’s 10-year bond yield reached 30-year highs this week, reflecting expectations of an imminent BOJ rate increase and mounting fiscal concerns. Meanwhile, the latest data showed core machinery orders in Japan jumped 9.7% in June, exceeding forecasts and pointing to stronger capital spending among companies.

The Japanese yen depreciated past 159.5 per dollar on Tuesday, reversing gains from the previous session amid mounting fiscal concerns and persistent inflationary pressures. The Takaichi administration’s plan to cut the consumption tax on food to 1% for two years has fueled market concerns, as the government has yet to identify an alternative revenue source and the measure is viewed as an ineffective response to inflation that may not deliver lasting price stability. Markets also remained concerned about elevated energy costs, which are weighing on Japan’s oil-dependent economy and currency. Additionally, the yen continued to face pressure from wide interest rate differentials, as surging Japanese government bond yields were offset by a similar rise in US Treasury yields. Meanwhile, traders are increasingly speculating on a Bank of Japan interest rate hike in September to support the yen and curb inflation.

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.