The yen is on track for its largest single-day advance in almost three weeks after Japanese officials discussed the currency's weakness during talks with their U.S. counterparts, driving the yen higher.
The yen rose as much as 1.2% on Friday to 156.98 per dollar, outperforming all other Group of Ten currencies.
Japanese Prime Minister Sanae Takaichi said during a meeting with U.S. President Donald Trump that the currency's undervaluation "is a problem," making traders more alert to the risk that authorities could step in to prop up the yen.
Kyodo News, citing Japanese Finance Minister Katayama Satsuki's remarks to reporters, reported that Katayama and U.S. Treasury Secretary Scott Bessent reaffirmed during a video call on Friday that the yen's undervaluation is a concern.
"Intervention risk should limit further yen weakness. More importantly, the yen may be approaching a turning point, as Trump's concern about yen weakness suggests deeper coordination between the U.S. and Japan to support the yen," said Moh Siong Sim, a strategist at Oversea-Chinese Banking Corp.
With markets expecting the Federal Reserve to raise interest rates further, which could keep the U.S.-Japan rate differential at a wide level, the yen has come under pressure again.
Uncertainty over how quickly the Bank of Japan can continue tightening policy has also weighed on the yen and pushed it toward the key level of 160 per dollar.
Although officials have emphasized the speed and disorderliness of exchange-rate moves rather than any specific level, market participants have consistently viewed the area around 160 per dollar as a zone where intervention risk rises.
Sentiment toward the yen in the options market has recently turned more bullish, reflecting rising demand for hedges against the risk of possible Japanese intervention.
Data released by the U.S. Commodity Futures Trading Commission last week showed that in the week ended September 15, leveraged traders cleared out bets against the yen and began building positions betting on yen strength.
Watch: Paul Dobson breaks down today's key themes for analysts and investors.
This summer, after the yen fell below 160 per dollar, Japan and the United States carried out their first coordinated yen-buying intervention since 1998.
Official data showed that in the month ended August 26, Japan spent a record 15.4 trillion yen ($97.4 billion) on currency intervention.
Bessent has also continued to signal support for a stronger yen, which may give Japan's warnings about the currency more weight in traders' eyes than in previous rounds of yen weakness.
Comments