The Japanese yen remained near multi-decade lows on Friday, 19 June, keeping markets on high alert for potential intervention by Japanese authorities. According to a Reuters report, the currency traded around 161.12 per US dollar, recovering only marginally after touching a two-year low in the previous session.
The yen’s weakness has persisted despite the Bank of Japan’s recent interest rate hike to a 31-year high and earlier dollar-selling interventions by Japan’s Ministry of Finance. Analysts say concerns surrounding Prime Minister Sanae Takaichi’s fiscal spending plans have undermined confidence in the currency and fuelled speculation that further intervention may be required.
DBS analysts noted that large speculative short positions against the yen remain elevated despite the BOJ’s tightening measures. They believe Japanese policymakers may increasingly rely on verbal warnings and direct market intervention to curb further depreciation, while softer oil prices could provide some relief to the currency.
Adding to concerns, Japan’s core inflation remained below the BOJ’s 2% target for a fourth consecutive month in May, as government fuel subsidies offset the impact of rising commodity prices. However, analysts at Capital Economics expect inflation to accelerate towards 3.5% by early 2027 as higher energy costs gradually feed through to utility bills and consumer prices.
Market participants are also closely watching intervention levels. Tony Sycamore, market analyst at IG, said Japan’s Ministry of Finance is likely to defend the 161.95 level initially using firepower similar to the roughly ¥11.7 trillion deployed during interventions earlier this year. However, he cautioned that authorities may eventually need to be more selective to preserve reserves and maintain policy credibility.
Dollar holds firm as Fed hawkishness supports greenback
Elsewhere, currency markets were largely subdued as the return of normal shipping activity through the Strait of Hormuz eased immediate geopolitical concerns following the US-Iran peace agreement, Reuters reported.
The US dollar remained well supported after Federal Reserve Chair Kevin Warsh adopted a more hawkish tone following this week’s policy meeting. The dollar index hovered near 100.82 after climbing to a one-year high in the previous session.
Money markets have sharply increased expectations of further US monetary tightening, with CME FedWatch data showing traders now pricing in a 38.5% probability of a 25-basis-point rate hike at the Fed’s July meeting, compared with just 8% a week ago.
The euro traded little changed at $1.1457, while the Australian dollar slipped marginally to $0.7011. The New Zealand dollar remained steady near $0.5752.
In the cryptocurrency market, Bitcoin edged 0.2% lower to $62,897, while Ether declined 0.3% to $1,703 as investors continued to assess the implications of a stronger dollar and tighter global financial conditions.
(With inputs from Reuters)
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