The Japanese yen rose against a basket of major and minor currencies in Asian trading on Friday, attempting to recover from a two-week low against the US dollar as buying emerged at depressed levels, amid speculation that Japan and the United States may need to intervene in the foreign exchange market again to support the currency.

Despite the rebound, the Japanese currency is heading toward its biggest weekly loss since May, having surrendered nearly half of the gains it made following the joint Japanese-US intervention in late July and early August.

The Price

The Japanese yen today: The dollar fell 0.1% against the yen to 159.33, from the opening level of 159.48, after reaching a high of 159.53.

The yen ended Thursday down less than 0.1% against the dollar, its second consecutive daily loss, after hitting a two-week low of 159.57.

US dollar

The US Dollar Index fell 0.1% on Friday, extending losses for a second consecutive session and reflecting continued weakness in the US currency against a basket of global currencies.

The dollars decline came after US inflation data released this week showed easing inflationary pressures on Federal Reserve policymakers, reducing expectations for US interest rate hikes this year.

Weekly trading

Over the course of this week, which officially ends with Fridays settlement, the Japanese yen is down around 1.0% against the US dollar so far, on track for a second consecutive weekly loss and its biggest weekly decline since May.

Government intervention

The yen is heading toward its biggest weekly loss in three months as the impact of the Japanese-US intervention in the foreign exchange market fades, prompting traders to speculate that another round of official buying may be needed to halt the currencys latest decline.

The Japanese currency has surrendered nearly half of the gains it made following intervention by Japan and the United States in the foreign exchange market in late July and early August.

Mitsuhiro Furusawa, Tokyos former top currency diplomat, told Reuters in an interview that Japan could conduct further joint intervention in the yen at any time and signal the possibility of raising interest rates faster than previously expected to curb further depreciation in the currency.

Japanese interest rates

Markets currently price the probability of the Bank of Japan raising interest rates by 25 basis points at its September meeting at 85%.

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

Japanese yen outlook

We expect the yen to continue trading in positive territory against the US dollar, supported by buying from depressed levels and growing speculation over fresh government intervention in the foreign exchange market.