Yen Remains on Intervention Watch

The Japanese yen traded around 158.5 per dollar on Friday, staying near two-week lows and close to the key 160 level that could test Tokyo’s tolerance for further yen weakness. The currency also remained under pressure from a stronger dollar and surging Treasury yields as expectations grew that the Federal Reserve will tighten policy further to curb inflation. Moreover, the yen weakened as the Bank of Japan’s rate hike last week was viewed as insufficiently hawkish, with two officials dissenting from the decision. Meanwhile, former board member Makoto Sakurai said the central bank is expected to raise interest rates roughly once every three months, potentially lifting them to 2% by around June next year as it seeks to tackle mounting inflationary pressures.

The Japanese yen depreciated past 158 per dollar on Thursday, hovering at three-week lows as the dollar strengthened following robust US private-sector activity data that reinforced expectations for further Federal Reserve rate hikes. Rising Treasury yields and elevated oil prices also highlighted mounting inflation risks, adding further pressure on the yen. Meanwhile, traders remained alert for possible intervention as the currency approaches the closely watched 160 level, with reports indicating that the Bank of Japan conducted a rate check with market participants last Friday. The BOJ's rate hike last week was seen as insufficiently hawkish, with two officials dissenting from the decision,. Elsewhere, S&P Global data showed Japan’s manufacturing growth slowed to a seven-month low in September, amid softer increases in output and new orders.

The Japanese yen weakened to around 157.6 per dollar on Wednesday, remaining under pressure and keeping traders alert for possible intervention amid an extended holiday in Japan. Tokyo has previously taken advantage of thin holiday liquidity to intervene in currency markets, while concerns intensified following reports that the Bank of Japan conducted a rate check with market participants last Friday. The yen also remained under pressure from a stronger dollar as hawkish comments from Federal Reserve officials reinforced expectations for further US interest rate hikes. Last week, the Japanese currency fell sharply after the BOJ raised rates in a widely anticipated move, with two policymakers dissenting from the decision. Governor Kazuo Ueda said the BOJ remains committed to raising rates and adjusting the degree of monetary accommodation as economic conditions evolve, while noting that accommodative financial conditions are expected to remain in place to support growth.