The Japanese yen held near its weakest level in 38 years on Thursday, with the currency’s recent slide and low liquidity during a U.S. market holiday raising fresh speculation about government intervention.
The yen, which measures the number of yen needed to buy one dollar, was down 0.1% at 161.50 by 20:04 ET (00:04 GMT). The pair had risen to 161.99 on Wednesday, before falling on some weakness in the dollar.
But the pair remained close to its highest level since 1986, as signs of weakness in the Japanese economy and fading expectations of further monetary tightening by the Bank of Japan kept traders largely short the yen.
Intervention in focus amid continuing warnings from authorities
The USD/JPY pair was trading above the 160 level – the level that was the last reason for intervention by the Japanese authorities in May.
Government officials have continued to verbally warn of possible intervention in markets to halt the yen’s slide, but they have not specified the levels or extent to which they would intervene.
Traders expected the low liquidity conditions during the US Independence Day holiday on July 4 to pave the way for government intervention, as lower trading volumes would reduce the cost of defending the currency.
The last time the government intervened — in early May — was during the Japanese market holiday, when trading volumes in currency markets were low.
But the intervention is expected to halt the yen’s slide only temporarily. Higher US interest rates and the Bank of Japan’s gradual monetary tightening are the biggest factors behind the yen’s decline, and these two factors are expected to continue to weigh on the currency in the near term.
Recent signs of weakness in Japan’s economy – after first-quarter GDP data was revised down sharply – have raised doubts about how much room the Bank of Japan has to tighten monetary policy. Japanese inflation has also turned to slowdown in recent months.