The Japanese yen weakened in Asian trading on Monday against a basket of major and minor currencies, extending its losses for a second consecutive session against the US dollar and moving further away from a two-week high as profit-taking and corrective selling continued.

The yen is once again drifting toward its weakest levels in 40 years, keeping investors focused on the potential next move by Japanese authorities, especially after the central bank's intervention in the foreign exchange market triggered only a brief rebound in the currency last Thursday.

The Price

USD/JPY rose more than 0.35% on Monday to 161.86, up from an opening level of 161.26, with an intraday low of 161.24.

The yen ended Friday down 0.15% against the dollar after reaching a two-week high of 160.48 earlier in the session.

The Japanese currency gained 0.25% against the dollar last week, marking its first weekly advance since May, supported by speculation about a Bank of Japan intervention and weaker-than-expected US employment data.

Japanese authorities

The latest decline in the yen has brought the currency back into the spotlight as it trades near its weakest levels in four decades, reinforcing speculation that Japanese authorities could step into the foreign exchange market once again.

The yen fell to its lowest level since 1986 at 162.84 last Wednesday, prompting intervention by the Bank of Japan on Thursday. The move helped the currency rally 0.9%, its largest daily gain since May.

Views and analysis

Analysts at OCBC believe intervention risks are more likely to trigger periods of volatility and temporary corrections rather than a lasting reversal in the USD/JPY trend.

They added that without a meaningful shift in economic fundamentals, verbal warnings or even direct intervention alone are unlikely to change the broader direction of the currency pair.

Marc Chandler, Chief Market Strategist at Bannockburn Global Forex, said the market is fully aware of the risk of Japanese intervention.

Chandler added that options market activity continues to show some large investors buying short-term dollar put options as a hedge against their long-dollar positions in case Japanese authorities intervene in the currency market.

US dollar

The US Dollar Index rose more than 0.1% on Monday, extending gains for a second straight session as the currency continued to recover from a two-week low, reflecting broader strength against a basket of global currencies.

Several analysts maintained a constructive outlook for the dollar and suggested it could appreciate by a modest 2%3% during the second half of 2026.

Investors are focusing this week on the minutes of the Federal Reserve's June meeting for further insight into policymakers' interest rate expectations for the remainder of the year.

Japanese interest rates

Market pricing for a 25-basis-point rate hike by the Bank of Japan at its July meeting remains below 25%.

Investors are awaiting additional data on inflation, unemployment, and wage growth in Japan to reassess the likelihood of future rate increases.