Yen Gains Amid Fresh Verbal Warning

The Japanese yen traded near the psychologically significant 160-per-dollar level on Friday after coming under sustained selling pressure throughout the week, prompting authorities to issue fresh warnings of potential currency market intervention. Finance Minister Satsuki Katayama stated that Japanese officials would maintain close coordination with their US counterparts and take appropriate measures if necessary to address excessive and rapid movements in the foreign exchange market. Japan’s top currency diplomat, Atsushi Mimura, also warned investors not to disregard the events of last summer, when Japanese and US authorities jointly intervened in the FX market to support the yen. The currency’s latest decline was largely driven by broad-based US dollar strength amid growing expectations of more aggressive Federal Reserve rate hikes, following stronger-than-expected US inflation data and increasingly hawkish remarks from Fed officials.

The Japanese yen traded near the psychologically important 160-per-dollar threshold on Thursday after sliding for two straight sessions and falling to its weakest levels in more than two months, opening the door for possible currency intervention. Japan’s top currency official, Atsushi Mimura, cautioned against overlooking the events of this summer, when Japanese and US authorities jointly intervened in the FX market to bolster the yen. The recent decline was driven by broad dollar strength amid rising expectations of a faster pace of Fed rate hikes, following hot US inflation data and increasingly hawkish comments from Fed officials. Meanwhile, domestic data showed that Japan’s producer prices increased 7.1% in October, exceeding market expectations of 6.5% and accelerating from September’s 6.8% gain. Those figures reinforce expectations of tighter monetary policy from the BOJ, which is also widely expected to raise rates next month and continue its tightening cycle into next year.

The Japanese yen weakened toward 159 per dollar on Wednesday, approaching a two-month low as the US dollar strengthened following hawkish comments from Federal Reserve officials and stronger-than-expected US inflation data. Markets are now assigning approximately a 91% probability to a Fed rate hike next month, up from 84% a day earlier, while additional increases in January and potentially April are also being factored in. The yen remained under pressure despite increasingly hawkish signals from the Bank of Japan, as policymakers broadly agreed that interest rates should continue moving higher, with underlying inflation reaching levels generally consistent with the central bank’s 2% price stability target. BOJ Chief Economist Seisaku Kameda also indicated on Monday that the central bank is likely to raise interest rates in December and continue its monetary tightening cycle into next year.