The yen has surrendered nearly half of the gains achieved through a joint U.S.-Japan intervention by the end of this week, fueling speculation that authorities may step in once again to support the currency. On Friday morning, the yen traded around 158.45 against the U.S. dollar, significantly weakening from the strong position of 155.23 touched on Monday.
Prior to last week's first joint U.S.-Japan yen-buying intervention since 1998, the dollar-yen pair had approached 164, near a four-decade extreme level. This pullback highlights the limitations of currency intervention in reversing the yen's prolonged depreciation trend. The wide interest rate gap between the U.S. and Japan, Japan's heavy debt burden, and ongoing geopolitical uncertainties all continue to pressure the yen.
Meanwhile, as oil prices rise, the dollar recorded its largest single-day gain in two weeks on Thursday, reflecting a fading optimism that tensions in the Middle East will ease. U.S. and Japanese officials have previously warned investors that they will continue to take action to support the yen if necessary.
"The possibility of another intervention is high, especially as the dollar-yen approaches 160," said Moh Siong Sim, a strategist at OCBC. However, he also noted: "For the intervention to be effective, it would require the Bank of Japan to accelerate its pace of rate hikes, or a shift in the environment that favors the Federal Reserve easing monetary policy."
Although the Bank of Japan kept its benchmark interest rate unchanged last week, overnight index swap markets indicate that investors still see a roughly 60% probability of a rate hike by September. Japan's top currency official, Atsushi Mimura, stated that the authorities will respond by combining exchange rate movements with monetary policy.
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