The Japanese yen was under pressure on Monday, with the USDJPY pair inching closer to key intervention levels despite warnings from government officials about potential support for the currency.
The pair, which measures the amount of yen needed to purchase one dollar, saw a slight increase on Monday to 159.93 yen. It was approaching the 160 yen mark, its highest level in over three decades, prompting government intervention back in May.
During the intervention in May, the USDJPY pair dropped to as low as 151 yen. However, weak economic indicators, particularly inflation, coupled with dovish signals from the Bank of Japan, caused the yen to rebound quickly.
The recent decline in the yen can be attributed to somewhat dovish signals from the BOJ at its June meeting. The central bank decided to keep interest rates unchanged and indicated that there were no immediate plans to tighten policy further. A decision on reducing bond purchases was deferred until July.
Traders were disappointed by the lack of a more hawkish stance from the BOJ, especially as the bank cautioned that excessive yen weakness might lead to interest rate hikes.
The minutes from the BOJ meeting reiterated this concern and also mentioned the possibility of raising rates if the economy showed signs of improvement this year. However, data thus far has painted a mixed picture of the Japanese economy, which contracted in the first quarter of 2024.
Despite the BOJ’s rate hike in March, the yen continued to face pressure due to the significant interest rate gap between the U.S. and Japan.
Japanese government officials continued to issue warnings about potential intervention to prevent excessive moves in the foreign exchange markets. Currency diplomat Masato Kanda reaffirmed his readiness to instruct the BOJ to intervene if necessary, noting past interventions spearheaded by him, including a record amount of dollar selling in 2022.