Japanese Government Warns of Potential Currency Intervention Amid Yen Weakness
Verbal Warnings on Potential Intervention
Japanese government officials continued to issue verbal warnings on potential intervention in currency markets, particularly after the Japanese yen reached its weakest levels since 1990 following the release of hotter-than-expected U.S. inflation data.
USDJPY Pair Hits 34-Year High
The USDJPY pair surged on Wednesday to a new 34-year high of 153.24, driven primarily by a stronger dollar that also pushed the dollar index to a five-month high.
Japanese Officials Express Concerns
In Asian trading on Thursday, the USDJPY pair pulled back from its highs, hovering around 152.84, after Japanese Finance Minister Shunichi Suzuki and Vice Finance Minister Masato Kanda reiterated their concerns over recent “excessive” moves in foreign exchange and expressed readiness to intervene in the currency market if necessary.
Yen Strengthens Amid Intervention Fears
The potential for intervention led to some strengthening of the yen, as Kanda had led record levels of government intervention in 2022 when the USDJPY pair last tested levels above 152.
USDJPY Outlook and U.S. Interest Rates
The outlook for the yen remains bleak despite the possibility of government intervention, especially in light of higher U.S. interest rates. Stronger-than-expected U.S. inflation data has contributed to yen weakness, as traders adjust their expectations on Federal Reserve rate hikes.
The Federal Reserve’s meeting minutes highlighted concerns about stubborn inflation, reinforcing expectations of a prolonged period of high interest rates in the U.S. This divergence in interest rate outlooks between the U.S. and Japan is likely to continue influencing the USDJPY pair in the near future.
