As the Japanese yen nears ¥160 to the dollar again, the possibility of government intervention has drawn market attention, while expectations are spreading that pressure on the yen will persist even after the Bank of Japan's rate hike. The yen was trading at around ¥157.85 to the dollar on the morning of the 24th.
The Japanese yen continued to approach ¥160 to the dollar, with the dollar-yen exchange rate trading at around ¥157.85 on the morning of the 24th. Although the dollar rose approximately 0.3% from the previous day, the move was not strong enough to reverse the decline seen over the previous 4 consecutive trading days.
The backdrop is a divergence in US and Japanese monetary policy. Despite the Bank of Japan raising its policy rate by 0.25 percentage points on the 18th to 1.25%, markets do not expect further tightening, failing to prompt yen buying. In the United States, meanwhile, expectations of further rate hikes remain amid solid economic data and concerns about inflation.
Market participants are closely watching the possibility of intervention when the exchange rate reaches ¥160. UBS has indicated that it views a post-intervention yen rally as a selling opportunity, and says that the combination of further Bank of Japan rate hikes and US interest-rate trends will have a major impact on the yen's outlook.
Officials at the US Treasury and other analysts largely believe that pressure on the yen will be difficult to stop as long as the US-Japan interest-rate differential remains wide, while some say intervention has limited effectiveness. Speculators' positioning is also changing, leaving a degree of caution over the outlook for further yen weakness.