Yen extends losses as intervention momentum from Japanese authorities fades

Yen lost ground in Asian trade against a basket of major rivals, heading for the second loss in a row against the dollar away from three-week highs amid active profit-taking, while intervention momentum from Japanese authorities faded. 

Traders are focusing back on the fundamentals, with the stark interest rate differences between the US and Japan coming to the forefront once more, in turn pressuring the yen. 

However, ongoing declines by US 10-year treasury yields is somewhat weakening the dollar and stemming yen’s losses. 

The Price

USD/JPY rose 0.5% to 154.59 yen, with a session-low at 153.83 yen.

Yen lost 0.6% against the dollar on Monday, the first loss in four days on profit-taking away from three-week highs at 151.86 yen per dollar.

Yen also lost ground as the Bank of Japan stopped intervening to support the local currency despite official holidays in Japan and the UK. 

Yen rose over 3.5% last week against the dollar, the largest weekly profit since November 2022 after the BOJ intervened in the forex market and bought nearly $60 billion worth of yen. 

Intervention Strategy 

Traders believe that Japanese authorities intervened for at least two days last week to boost the yen after trading below 160 yen per dollar.

The Wall Street Journal reported the government’s intervention spanning Monday and Wednesday, with a focus on low-liquidity days to maximize effects. 

According to the current intervention strategy, it was anticipated that upcoming public holidays in Japan and the UK this month could become windows for further aggressive interventions by the Bank of Japan. 

Withdrawal 

However, Japanese authorities curtailed their intervention, and refused to comment on their role in the forex market. 

Interest Rate Gap

The current US-Japan interest rate gap stands at 540 basis points in favor of the US, and such a gap will continue to offer support for the dollar.

The gap could shrink multiple times this year as the Federal Reserve  prepares to ease policies. 

US Yields

US 10-year treasury yields fell by 0.1% today on track for the fifth loss in a row, hovering near three-week lows at 4.469%, and hurting the dollar’s standing, following somewhat weak US payrolls data last week, which boosted the odds of multiple Fed rate cuts this year.