The Japanese yen rose sharply late Thursday, with the USD/JPY pair falling to its lowest level in nearly a month amid speculation about possible government currency intervention.
The yen’s strength also came as weaker-than-expected U.S. consumer price index data hurt sentiment and boosted expectations of a September interest rate cut by the Federal Reserve.
The pair, which measures how much yen is needed to buy one dollar, was steady at around 159 yen in early trading on Friday, after falling 2% on Thursday. The pair had been trading near a 38-year high of around 162 yen earlier this week.
Traders were expecting the USD/JPY pair to reach the 162 level as a red line for government intervention.
The pair’s sharp decline has sparked speculation that the Japanese government has intervened in currency markets. Masato Kanda, the country’s top foreign exchange diplomat who led previous interventions in the yen market, has offered little indication of whether the government has intervened this time.
Local media reported that the Bank of Japan had examined the yen’s exchange rate against the euro, a move that could have heralded some intervention in the currency market.
The yen has weakened sharply over the past month as a string of weak Japanese economic readings raised bets that the Bank of Japan will have little room to tighten monetary policy further this year.
The Bank of Japan raised interest rates for the first time in 17 years in March, taking them out of negative territory. But the move offered little support to the yen.
Moderate inflation rates and weak business activity readings, along with a sharp downward revision to first-quarter GDP data, have raised doubts about the Bank of Japan and the yen’s weakness.
But the biggest pressure on the yen has been rising US interest rates, which have kept the dollar bullish. However, that notion now appears to be on the wane as traders prepare for a September rate hike, especially after Thursday’s weak CPI inflation data.
