The yen's depreciation has paused at the critical 160 level against the US dollar, with traders hesitant to push the exchange rate lower due to concerns that Japanese authorities might intervene to support the currency.
On Wednesday morning, the yen experienced a slight decline, nearing the 160 yen per dollar mark, reaching its lowest point since authorities intervened in late April.
Between April 28 and May 27, Japan deployed a record sum of 11.73 trillion yen (equivalent to $73.35 billion) to bolster its currency. Despite this substantial intervention, the yen has continued to follow the aforementioned trajectory. Japan's Finance Minister, Shunichi Suzuki, reiterated on Wednesday that authorities stand ready to respond to foreign exchange market movements as necessary.
Tsutomu Nakamura of Gaitame.com Research Institute noted, "As the dollar-yen rate approaches the 160 level, intervention fears are rapidly intensifying, sparking a psychological battle." However, he added, "The exchange rate could hit 160 at any moment."
The yen faces additional pressure due to the significant interest rate differential between the US and Japan, which has persisted since the Bank of Japan held rates steady in April. This pressure is compounded by a lack of progress in negotiations for a permanent ceasefire between the US and Iran.
Bank of Japan Governor Kazuo Ueda is scheduled to speak at 5:30 PM local time on Wednesday. This will be his final public appearance before the central bank's policy board meeting on June 16. Overnight index swaps currently indicate an approximately 84% probability of a rate hike this month.
"The market has not fully priced in expectations for a June rate hike," said Kumiko Ishikawa, a senior analyst at Sony Financial Group. "Therefore, if Governor Ueda's remarks prompt the market to reflect this, it should provide some support for the yen. However, if his comments are perceived as dovish, the dollar-yen rate could surge significantly, so the market is closely watching this speech."
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