Investing.com — The Japanese yen was fragile on Monday, with the USD/JPY pair approaching key intervention levels even as government officials repeated warnings that they would intervene to support the currency.
The pair, which measures the number of yen needed to buy one dollar, rose slightly on Monday to 159.93 yen. The pair was on the verge of reaching 160 yen, its highest level in more than 30 years, and sparked government intervention in May.
Government intervention in May sent the USDJPY pair down to 151. But a combination of weak economic readings, especially inflation, as well as dovish signals from the Bank of Japan, pushed the yen to quickly reverse course.
The yen’s recent decline was driven by somewhat dovish signals from the Bank of Japan at its June meeting. The central bank kept interest rates unchanged and said it had no immediate plans to tighten policy further, and that the decision to reduce its bond purchases would not be made until July.
The move disappointed traders who were bracing for a more hawkish BoJ, especially since the bank warned that excessive weakness in the yen could lead to higher interest rates.
The Bank of Japan’s meeting minutes, released on Monday, confirmed this idea.
The minutes also showed that the Bank of Japan is prepared to raise interest rates further if the economy accelerates this year. But the data so far has painted a mediocre picture of the Japanese economy, which contracted in the first quarter of 2024.
The Bank of Japan raised interest rates for the first time in 17 years in March, taking them out of negative territory after nearly a decade. But the move provided little support for the yen, which remained under pressure from the wide gap between US and Japanese interest rates.
Yen’s intervention threats continue
The recent weakness in the yen came even as Japanese government officials continued warnings about possible intervention.
Masato Kanda, the country’s top currency diplomat, reiterated his warning that he would ask the Bank of Japan to intervene in markets in the event of “excessive” movements in foreign exchange markets. But he did not comment on whether the recent moves in the yen were excessive.
Kanda said he was ready “to intervene 24 hours a day if necessary.”
Kanda had led previous intervention by the government, notably selling a record amount of dollars in 2022.