Yen’s strength was short-lived due to suspected intervention, USDJPY back above 156 By Investing.com

Investing.com — The Japanese yen weakened sharply on Thursday, seeing limited resilience amid what appeared to be repeated interventions in the government’s currency markets, while the specter of high U.S. interest rates continued.

The pair – which measures the amount of yen needed to buy one dollar – rose 1% to 156 in late morning trading, after falling to 153 on Wednesday.

While a sharp decline in the yen also played a role in some of the yen’s recent strengthening, the USDJPY’s sharp downward moves on Monday and Wednesday had traders speculating about likely government intervention in the currency markets.

Japanese officials refused to directly confirm that intervention had taken place. But the intervention could be confirmed later in May, when the Finance Ministry announces the composition of its official reserves for the end of April. The Ministry of Finance is expected to announce the monthly size of the interventions this week.

The USDJPY pair rose to 160 this week, a 34-year high. Traders said this level was the new line in the sand for the MoF, which last followed an expensive yen intervention course in late 2022.

But even with the likely government intervention, the main drivers of the yen’s weakness continued to play a role, especially after this week’s Federal Reserve meeting.

The Fed held rates steady and rejected any expectations of further rate cuts, causing some short-term weakness in the dollar. The dollar fell sharply on Wednesday from a nearly six-month high, a move that also played a role in some strength in the yen.

But the outlook for the dollar remained optimistic as the Fed signaled it has no plans to cut rates in the near term, citing a lack of progress in its quest to keep inflation within its 2% annual target. to take. The central bank is now expected to not start cutting rates until the fourth quarter, if at all.

The wide gap between US and Japanese interest rates has been the biggest pressure on the yen and is expected to continue in the near term.

Lack of clarity on the Bank of Japan’s plans for future rate hikes is also expected to leave traders largely biased against the yen in the near term. The BOJ did not address the yen’s weakness at a meeting last week, and gave few clues about its plans to raise rates further after a historic hike in March.