July 12 2024: The Japanese yen strengthened significantly late on Thursday, with the USDJPY pair dropping to a near one-month low amid speculation about potential currency market intervention by the government.
The yen’s rise was also influenced by softer-than-expected consumer price index (CPI) data, which weakened the U.S. dollar and heightened expectations for a September interest rate cut by the Federal Reserve.
The USDJPY pair, which measures the yen’s value against the U.S. dollar, settled around 159 in early Friday trade after dropping over 2% on Thursday. The pair had been trading close to 38-year highs around 162 yen earlier in the week.
Traders had viewed 162 as a critical level for potential government intervention.
The pair’s sharp decline fueled speculation that the Japanese government had intervened in currency markets. Top foreign exchange diplomat Masato Kanda, who led previous interventions in the yen, offered limited information on whether the government had stepped in this time.
Local media reported that the Bank of Japan (BOJ) had conducted a rate check for the yen against the euro, which could signal currency market intervention.
The yen had weakened significantly over the past month due to a series of weak Japanese economic indicators, which increased bets that the BOJ would have limited capacity to tighten policy further this year.
The BOJ had raised rates for the first time in 17 years in March, moving them out of negative territory. However, this move provided little support to the yen. Middling inflation and soft business activity readings, along with a sharp downward revision for first-quarter gross domestic product data, contributed to doubts about the BOJ and weakness in the yen.
However, the primary pressure on the yen was high U.S. interest rates, which kept the dollar strong. This pressure now appears to be easing as traders anticipate a September rate cut, especially after the soft CPI inflation data on Thursday.
