The Japanese yen rose in Asian trading on Friday against a basket of major and minor currencies, as it attempted to recover from a two-year low against the US dollar amid notable buying interest at depressed levels.

The two-year low now sits just one point away from the yens weakest levels since 1986, prompting the currency to move away from those levels as Japanese authorities maintain close scrutiny of the foreign exchange market and continue warning of possible intervention to curb excessive weakness and volatility.

The Price

Japanese yen exchange rate today: The US dollar fell more than 0.1% against the yen to 161.60, from an opening level of 161.78, after reaching an intraday high of 161.853.

The yen ended Thursdays session little changed against the dollar after earlier touching a two-year low of 161.94, just one point away from its 40-year low of 161.95.

Weekly performance

So far this week, which officially concludes with todays settlement prices, the Japanese yen is down 0.25% against the US dollar and is on track to post a second consecutive weekly loss.

US dollar

The US Dollar Index fell around 0.1% on Friday, extending losses for a second straight session and moving further away from a 13-month high, reflecting continued easing in the greenback against a basket of major currencies.

In addition to ongoing profit-taking, the dollar weakened after US inflation data came in line with expectations, while Federal Reserve officials delivered mixed signals regarding the path of monetary policy this year.

Chicago Federal Reserve President Austin Goolsbee said there is a glimmer of hope regarding services inflation, though underlying price pressures remain too elevated and are moving in the wrong direction.

Meanwhile, New York Federal Reserve President John Williams said inflation remains too high and that interest rate policy is well positioned to continue reducing price pressures.

Japanese authorities

Japanese authorities are closely monitoring movements in the currency market, particularly as the yen approaches its weakest level in 40 years after breaking above the key 160-per-dollar threshold, a level widely viewed as a red line that could trigger renewed intervention to support the currency.

Earlier this week, Japanese Finance Minister Satsuki Katayama held an online meeting with US Treasury Secretary Scott Bessent amid growing concerns about sharp currency volatility.

According to sources cited by Reuters, the discussions focused on proposed measures to address the yens historic weakness, including the possibility of intervention in the foreign exchange market.

Katayama stressed that Japanese authorities are fully prepared to take decisive action and intervene directly in the currency market at any time to protect the yen from speculative moves.

Views and analysis

Matt Simpson, Senior Market Analyst at StoneX, said Japans Ministry of Finance may be concerned about USD/JPY rising to its highest level of 2024.

Simpson added that policymakers may also feel powerless to act, as intervention against a hawkish Federal Reserve and strong US economic data could prove costly and ineffective.

Former Bank of Japan board member Sayuri Shirai said the yen could weaken to 165 per dollar if the Federal Reserve raises interest rates later this year.

Tokyo core inflation

Data released in Japan on Friday showed Tokyo core consumer prices rose 1.6% in June, matching market expectations and accelerating from 1.3% in May.

Despite the improvement, inflation remains below the Bank of Japans 2% target, highlighting continued weakness in underlying price pressures and reducing the likelihood of further interest rate increases this year.

Japanese interest rates

A summary of opinions from the Bank of Japans June policy meeting, released on Wednesday, showed that some board members called for additional monetary tightening to move the benchmark interest rate closer to levels considered neutral for the economy.

Markets currently price the probability of a 25-basis-point rate hike at the Bank of Japans July meeting at less than 25%.

Investors are awaiting further data on inflation, unemployment, and wage growth in Japan to reassess those expectations.