The Japanese yen weakened against a basket of major and minor currencies during Asian trading on Friday, resuming its losses against the US dollar after a brief recovery in the previous session as traders engaged in profit-taking activity.
Despite the latest decline, the Japanese currency remains on track to post its first weekly gain in two months, supported by a rebound from its lowest levels in 40 years and renewed warnings from Japanese officials over excessive movements in the foreign exchange market.
The Price
USD/JPY rose 0.25% to 161.52 from an opening level of 161.10, after touching an intraday low of 160.92.
The yen gained 0.9% against the dollar on Thursday, marking its first daily advance in four sessions and its strongest one-day gain since May, as traders bought the currency after it fell to a 40-year low of 162.84.
Supported by bargain buying, the yen climbed to a two-week high of 160.62. The move was also fueled by speculation about potential intervention by the Bank of Japan in the foreign exchange market and weaker-than-expected US employment data.
Weekly Performance
As of Fridays trading, the yen is up around 0.25% against the US dollar for the week and is on track to record its first weekly gain since May.
Japanese Authorities
The yens slide to a 40-year low has revived speculation that Japanese authorities could return to the market after spending a record 11.7 trillion ($73.5 billion) in April and May to support the currency against excessive volatility.
Investors remain alert to the possibility of intervention after Japanese officials shifted away from their usual strategy of signaling intervention in advance, opting instead for a more targeted approach aimed at increasing pressure on speculators and raising the cost of betting against the yen.
Toshihiro Nagahama, a government adviser and member of an official policy panel, said on Thursday that the Bank of Japan should continue raising interest rates gradually to help curb excessive weakness in the yen.
Japanese Finance Minister Satsuki Katayama also reiterated on Friday that the government stands ready to respond appropriately to currency movements, renewing official warnings as traders monitor the possibility of intervention.
Our position has not changed. We will respond appropriately whenever necessary, Katayama told reporters, adding that Japan remains in close contact with US authorities regarding foreign exchange issues, including during US public holidays.
Views and Analysis
Kristy Tan, Chief Global Investment Strategist at Franklin Templeton Institute, said intervention could slow the pace of the yens decline, curb excessive speculation, and signal policymakers concerns, but it would not fundamentally change market dynamics.
Tan added that as long as investors can borrow cheaply in yen and invest in higher-yielding US assets, carry trades will continue to pressure the Japanese currency.
Traders view Fridays US market holiday as a potential opportunity for the Bank of Japan to intervene, as thinner liquidity conditions could amplify the impact of any currency-buying operation while reducing its cost.
Japanese Interest Rates
Market pricing currently implies less than a 25% probability that the Bank of Japan will raise interest rates by a quarter percentage point at its July meeting.
Investors are awaiting additional data on inflation, wages, and unemployment in Japan to reassess those expectations.