Japanese Yen Hovers Near Four-Decade Low

The Japanese yen weakened beyond the 161-per-dollar threshold late Thursday, moving closer to its weakest level in nearly four decades and reigniting speculation that Japanese authorities could intervene again to support the currency.

Following the close of Japan’s stock market, the yen came under renewed selling pressure, falling to as low as 161.80 per dollar, its weakest level since July 2024. Analysts noted that a move beyond 161.96 would place the currency at its lowest level since 1986, a milestone that could intensify scrutiny from policymakers and investors alike.

The yen was last trading around 161.25 per dollar, remaining near historically depressed levels despite previous government efforts to stabilize the currency.

The yen has struggled to recover even after Japan’s Ministry of Finance intervened in foreign exchange markets earlier this year by selling dollars. A recent interest-rate increase by the Bank of Japan, which lifted borrowing costs to their highest level in 31 years, has also failed to provide meaningful support.

Investor sentiment has been further undermined by concerns surrounding Prime Minister Sanae Takaichi’s government spending plans, fueling expectations that authorities may eventually be forced to step back into currency markets.

Analysts at DBS Bank said speculative short positions against the yen remain elevated despite the central bank’s latest policy tightening, suggesting traders continue to bet on further weakness.

“The tolerance for additional depreciation appears to be nearing its limits,” the analysts wrote, adding that policymakers could resort to further interventions or stronger verbal warnings to slow the currency’s decline.

Fresh data released Friday showed Japan’s core annual inflation rate remained below the Bank of Japan’s 2% target for a fourth consecutive month in May. Government fuel subsidies helped offset the impact of rising raw-material costs linked to tensions in the Middle East.

Economists at Capital Economics expect higher energy costs to gradually feed through to consumer prices and utility bills, potentially pushing inflation toward 3.5% by early 2027.

Minutes from the Bank of Japan’s April meeting, published Friday, alongside comments from Deputy Governor Ryozo Himino, highlighted concerns over the risks of additional rate hikes amid inflationary pressures linked to regional geopolitical tensions.

Tony Sycamore, a market analyst at IG, said Japan’s Ministry of Finance may seek to defend the 161.95 level if the currency tests it repeatedly.

He estimated that authorities could be forced to deploy intervention measures comparable to those used in April and May, when approximately ¥11.7 trillion was spent supporting the yen.

While such actions may temporarily slow the currency’s decline, Sycamore cautioned that interventions could consume 11% to 12% of available reserves within a short period while having only a limited impact on broader market trends.

Meanwhile, the U.S. dollar continued to benefit from expectations of prolonged monetary tightening. The U.S. Dollar Index, which tracks the greenback against a basket of six major currencies, held at 100.82 after reaching its highest level of the year on Thursday.

The dollar’s strength was supported by hawkish remarks from Federal Reserve Chair Kevin Warsh, reinforcing market expectations that U.S. interest rates could remain elevated for longer.

Federal funds futures currently imply a 38.5% probability of a 25-basis-point rate increase at the Federal Reserve’s July meeting, up sharply from just 8% a week earlier.

Elsewhere in currency markets, the euro traded at $1.1457, while the Australian dollar slipped 0.1% to $0.7011 and the New Zealand dollar held steady at $0.5752.

In digital assets, Bitcoin edged down 0.2% to $62,897, while Ether fell 0.3% to $1,703 as investors remained cautious amid shifting expectations for global monetary policy.