The Japanese yen fell in Asian trading on Friday against a basket of major and minor currencies, extending its losses for a fifth straight session against the US dollar and hitting its weakest level in two weeks. The currency is now on track for its biggest weekly loss since March, as investors continue favoring the US dollar as the best available investment, particularly amid growing expectations that the Federal Reserve could raise interest rates this year to contain mounting inflationary pressures in the United States.

Government data released Friday in Japan showed producer prices rose in April at the fastest pace in three years, driven by higher oil and fuel costs resulting from the war with Iran. The figures reinforced expectations that the Bank of Japan could raise interest rates as soon as its June meeting.

Price overview

USD/JPY today: The dollar rose 0.15% against the yen to 158.59, the highest level since April 30, after opening at 158.36 and touching an intraday low of 158.26.

The yen ended Thursday down 0.3% against the dollar, marking its fourth consecutive daily loss due to rising US Treasury yields.

Weekly performance

Over the course of this weeks trading, which officially concludes with Fridays settlement, the Japanese yen has declined 1.25% against the US dollar so far. It is on track for its first weekly loss in the past three weeks and its biggest weekly decline since March.

Japanese authorities

Japanese Finance Minister Satsuki Katayama confirmed following this weeks meeting with US Treasury Secretary Scott Bessent that both sides are fully aligned regarding currency market movements.

The US side also reaffirmed that coordination remains strong to address any excessive and undesirable volatility in the foreign exchange market, effectively giving Japan an implicit green light for further intervention if needed.

Katayama had previously issued strong warnings against speculative and excessive currency moves and hinted at decisive action while urging markets to remain on high alert.

US dollar

The US dollar index rose 0.25% on Friday, extending gains for a fifth straight session and hitting its highest level in five weeks, reflecting broad-based strength in the US currency against a basket of global currencies.

The dollar received additional support from rising US Treasury yields as investors increased bets that the Federal Reserve will raise interest rates at least once this year.

US data released this week showed consumer prices in April rose at the fastest pace in three years, while producer prices recorded their biggest increase in four years, highlighting renewed inflationary pressure on Federal Reserve policymakers.

According to the CME FedWatch Tool, markets are now pricing in a 45% probability of a Federal Reserve rate hike in December, up sharply from just over 16% a week ago.

Japan producer prices

Data released Friday in Tokyo showed Japans producer price index rose 4.9% year-over-year in April, marking the fastest annual increase since May 2023 and exceeding market expectations for a 3.0% rise. The figure accelerated sharply from a 2.9% increase recorded in March.

The data followed calls from a Bank of Japan policymaker to raise interest rates as soon as possible due to higher fuel costs linked to the Middle East war and the resulting increase in price pressures.

Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities, said: Todays inflation data was stronger than expected, so markets have largely priced in a Japanese rate hike in June.

Japanese interest rates

Following the latest data, markets raised the probability of a quarter-point Bank of Japan rate hike at the June meeting from 60% to 75%.

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

The Bank of Japans Summary of Opinions released this week showed a clear shift toward tighter monetary policy and preparation for an earlier rate hike, driven by rising inflation risks linked to the Middle East crisis and the Iranian war.