USD/JPY rate carries intervention risk, analysts say
As Finance Minister Satsuki Katayama informed, Tokyo remains in constant contact with Washington regarding potential currency market intervention to support the yen.
These actions are being considered after the Japanese currency rebounded from its lowest level since 1986.
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"Our position has not changed. If necessary, we will respond appropriately at any time", Katayama said, quoted by Reuters.
Prolonged weakness of the yen poses a range of problems for both Japanese households and businesses.
According to a report by Tokyo Shoko Research, the first half of the year saw 45 cases of bankruptcies linked to a weak yen, an increase of 32,3% compared to the same period last year.
"The USD/JPY rate showed downward volatility yesterday, even before a weak US employment report caused a temporary dip below 161.0. It cannot be ruled out that this initial move was the result of currency intervention", analysts at ING Think said.
"Due to US holidays that limit market liquidity today and Monday, the risk of further intervention remains high despite the recent downward correction of the USD/JPY rate. Japanese authorities typically act during holiday periods and spread actions over several days. Acting after an event unfavorable to the dollar would also align with their 2024 approach," they added.
The weakening of expectations for Fed rate hikes triggered by the latest Non-Farm Payrolls report arrived after months of speculation about future Fed actions under the leadership of Kevin Warsh, the new chairman of the U.S. central bank.
The ING Think team claims that the coming days will be crucial for both the dollar and the Japanese yen.
"The sharp drop in weekly risk indicators for the USD/JPY rate indicates a higher implied probability of a swift intervention. While weaker U.S. data improve the short-term yen situation, we believe that more hawkish Bank of Japan statements on rates are still needed to prevent a repeat of the USD/JPY rebound that occurred after a series of interventions in April and May," they summarized.
Read more about the latest U.S. labor market data in the article: The dollar loses momentum after U.S. data. The labor market changes the rules of the game for USD/PLN and EUR/USD?
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Dollar to yen rate on Friday, July 3
The dollar to Japanese yen rate on Friday, July 3 is at 161,08 JPY.
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Chart. Dollar to Japanese yen rate (USD/JPY)
Source: Trading Economics.
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Sources: Reuters, ING Think.
