The yen perked up slightly on Tuesday amid broad U.S. dollar weakness.
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The yen perked up slightly on Tuesday amid broad U.S. dollar weakness after the severest warning yet from authorities signaled Tokyo’s readiness to intervene as the Japanese currency hovered near recent lows against major peers.
The threat of intervention is keeping yen bears at bay for now, although near-term yen weakness is likely to persist, analysts say, as the cautious tone from the Bank of Japan last week hinted at a slow pace of rate hikes next year.
The yen last bought 156.77 per U.S. dollar after firming 0.4% in the previous session but was not far off the 11- month low of 157.78 it touched on Friday after the BOJ delivered a well-telegraphed rate hike.
The yen appreciated against the euro and sterling in early Asian hours on Tuesday but hung around recent lows.
Japanese finance minister Satsuki Katayama told Bloomberg News in an interview that Japan has a free hand in dealing with excessive moves in the yen, the latest jawboning from authorities aimed at stemming the yen’s decline.
Matt Simpson, senior market analyst at StoneX, said if Japanese authorities have any intention of intervening at all, “the low-liquidity period between Christmas and New Year would give them the most bang for their yen, so to speak.”
“I’m just not convinced they need to, unless we see a volatile breakout above 159. Volatility levels were higher in 2022, when traders were seemingly goading the Ministry of Finance into action, yet that seems lacking this time around.”
Japan intervened in 2022 as well as in 2024 to support the yen.
The drop in the yen has come in the face of dollar weakness after the Federal Reserve earlier this month cut interest rates and projected another cut in 2026, although traders are pricing in two more rate cuts from the Fed next year.
Charu Chanana, chief investment strategist at Saxo, said a slow BOJ hiking cycle and potential Fed easing in 2026 points to less one-way yen weakness and a better chance of range trading with yen strength likely when U.S. yields fall or risk sentiment turns.
“Biggest risk will be if U.S. stays ‘higher-for-longer’ and BOJ turns cautious again with key catalysts ahead being the Shunto wage negotiations as well as U.S. rates,” Chanana said.
Dollar Drifts in December
The dollar too remained under pressure, with the euro slightly firmer at $1.17685 and sterling just shy of a two-and-a-half-month high, at $1.3474.
The dollar index, which measures the U.S. currency against six rivals, eased a bit to 98.18 in early trading on Tuesday after dropping 0.48% on Monday. The index is on course for a 1.3% decline for the month and a 9.5% drop for the year, its steepest annual fall since 2017.
Strategists at MUFG said the drop for the dollar this year is unlikely to be a one-off with scope for further gains ahead. “We essentially believe the U.S. dollar has peaked and we are now in a multi-year downtrend for the dollar,” they said in a note.
Investor focus will be on U.S. GDP data due later on Tuesday. The data was delayed by the 43-day government shutdown and is now outdated, with markets unlikely to be swayed too much by it.
The data will likely confirm what economists call a K-shaped economy in which higher-income households are doing well, while middle- and lower-income are barely staying afloat.
GDP likely increased at a 3.3% annualized rate last quarter, a Reuters survey of economists estimated. The economy grew at a 3.8% pace in the second quarter .
“A print above 3% would confirm that the U.S. economy was on solid footing before the government shutdown began on October 1,” said Tony Sycamore, market analyst at IG.
In other currencies, the Australian dollar last fetched $0.666, while the New Zealand dollar was 0.13% higher at $0.5801. The Swiss franc firmed to a one-month high of 0.7909 per U.S. dollar.
