Investing.com – The Japanese yen weakened sharply on Thursday, showing limited resilience as repeated government interventions in currency markets and the lingering specter of high U.S. interest rates.
The pair, which measures the amount of yen needed to buy one dollar, rose 1% to 156 in morning trade after falling to 153 on Wednesday.
While the sharp depreciation also contributed to the yen’s recent strength, the USDJPY’s sharp downward moves on Monday and Wednesday have traders speculating about possible government intervention in foreign exchange markets.
Japanese officials declined to directly confirm the intervention. But intervention could be confirmed later in May, when the Treasury publishes the composition of its official reserves at the end of April. The Ministry of Finance is expected to publish the monthly size of interventions this week.
This week, USDJPY rose to 160, a 34-year high. Traders said the level marked a new line in the sand for the Treasury, which last carried out costly yen intervention in late 2022.
But even despite the expected government intervention, the underlying reasons for the yen’s weakness still remain in place, especially after this week’s Federal Reserve meeting.
The Fed kept rates steady and rejected any expectations of further rate cuts, causing some near-term weakness in the dollar. On Wednesday, the dollar fell sharply from a nearly six-month high, which also contributed to some strengthening of the yen.
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But the dollar’s outlook remains bright as the Fed said it has no intention of cutting rates in the near term, citing a lack of progress in efforts to keep inflation within its 2% annual target. The central bank is not expected to begin cutting rates until the fourth quarter, if at all.
The wide gap between U.S. and Japanese interest rates has been the biggest point of pressure on the yen and is expected to persist in the near term.
The lack of clarity on the BOJ’s plans for future rate hikes is also expected to keep traders heavily biased against the yen in the short term. The Bank of Japan shrugged off the yen’s weakness during a meeting last week and also gave scant hints on its plans to raise rates further after a historic hike in March.