Yen Holds Steady After Inflation Data

The Japanese yen was little changed around 159 per dollar on Friday after experiencing heightened volatility earlier this week, as data showed Japan’s inflation rate accelerated for the second consecutive month, strengthening the case for a Bank of Japan interest rate hike in the near term. Markets are speculating on a possible move in September, with BOJ Governor Kazuo Ueda indicating that authorities could begin normalizing policy at a faster pace. The yen jumped nearly 1% on Wednesday after the US Treasury Department announced larger debt buybacks aimed at containing borrowing costs, before giving back more than half of those gains a day later amid concerns that the US government’s plan may provide only a temporary solution. The local currency also remained under longer-term pressure due to wide interest rate differentials, mounting fiscal concerns and elevated energy and import costs.

The Japanese yen traded near 158 per dollar on Thursday after gaining nearly 1% in the previous session, supported by a sharp decline in the dollar and retreating Treasury yields as the US government moved to contain long-term borrowing costs by expanding its bond buyback program. The US Treasury Department said it would at least double the size of liquidity-support buyback operations covering securities with maturities from 10 to 30 years, as the recent surge in yields heightened concerns over market liquidity and stability. Still, the yen remained under pressure over the longer term due to wide interest rate differentials, mounting fiscal concerns and elevated energy and import costs. Latest data also showed Japan’s trade deficit widened sharply in July as imports surged to a record high on increased crude oil purchases, while export growth remained robust, supported by strong demand for AI-related chips.

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.