Japanese PM Takaichi Addresses Yen Weakness, US Intervention Amid Market Caution

Japanese officials, including top currency diplomat Atsushi Mimura and Finance Minister Satsuki Katayama, have intensified their verbal warnings to markets, signaling a strong determination to support the domestic currency. The USD/JPY pair is trading around 157.00, down approximately 0.25% for the day, recovering from a one-and-a-half-week low. The Japanese Yen is also showing outperformance among G10 currencies as traders remain on high alert for potential intervention.

The USD/JPY pair has seen significant movement, initially falling by 0.30% to trade around 156.80 on Wednesday. This decline was primarily driven by softer-than-expected United States (US) inflation data, specifically the Personal Consumption Expenditures (PCE) Price Index. Annual headline PCE inflation remained unchanged at 3.4% in August, falling short of the 3.7% market expectation, with July’s reading also revised lower to 3.4% from 3.7%. This data has put selling pressure on the US Dollar and led investors to reassess the timing of potential Federal Reserve rate hikes, trimming market bets for the October 28 meeting. The pair later recovered some ground, trading around 157.42 with a modest gain of 0.08% at a later point in the day, but remains neutral to downward-biased.

The USD/JPY pair experienced further volatility, initially falling below 156.50 after softer US inflation data pulled October Federal Reserve rate hike odds down to near 35%. The pair later recovered, finishing just under 157.50, marking its fourth straight close on the 157.00 handle, and currently trades around 157.50. Separately, the Bank of Japan (BoJ) raised its rate to 1.25% on September 18, with swaps pricing about a 36% chance of another BoJ hike on October 30. The Fed’s current rate range of 3.75-4.00% maintains a policy rate gap of at least 2.5 points with the BoJ. In Japanese economic data, the BoJ’s Tankan Large Manufacturing Index rose to 24 in Q3 (from 22), missing the 25 expectation, while the Tankan Non-Manufacturing Index eased to 35 (from 37), also below the 36 consensus.

The USD/JPY pair has extended its gains on Thursday, rising to a fresh weekly high above 158.00 and nearing a one-month high just above 159.00. This advance is primarily driven by higher US Treasury yields, which have offset the impact of a hawkishly tilted Summary of Opinions from the Bank of Japan (BoJ). Within the BoJ, policymakers noted Japan’s economy has recovered moderately and inflation is nearing its 2% target, with some committee members advocating for accelerating monetary tightening or bringing interest rates to the central bank’s target.

New data from Japan’s Ministry of Finance confirmed no FX intervention was conducted between August 27 and September 28, following a record coordinated operation in July. This absence of intervention, coupled with elevated US yields and firm Dollar conditions, has contributed to Yen weakness. Separately, the Japanese Yen weakened further, with the USD/JPY pair rising to 158.44, after the Bank of Japan’s (BoJ) Summary of Opinions disappointed market expectations for an October rate hike. Japanese rate markets have since scaled back BoJ tightening pricing, though MUFG still anticipates another hike in December.

Japan’s Prime Minister, Sanae Takaichi, stated on Thursday that her government’s policies aim to boost market confidence in the Yen, acknowledging that previous efforts, including U.S. intervention, had underwhelmed. Takaichi revealed she informed U.S. President Donald Trump last month that the Yen’s undervaluation was a concern, while emphasizing that Japan’s economic policy is not intended to manipulate exchange rates. Separately, the USD/JPY pair surged to its 200-day moving average at 158.49 on broad Dollar strength, with Brown Brothers Harriman anticipating the pair to trade within a 155.00–160.00 range in the near term. The Yen’s underperformance continues as traders trim Bank of Japan (BoJ) interest rate hike expectations following the recent Summary of Opinions.

The USD/JPY pair reversed earlier gains on Thursday, trading around 157.95 after touching an intraday high near 158.44. This reversal was attributed to intervention risk prompting trader hesitation, even as the US Dollar climbed to a fresh year-to-date high, with the US Dollar Index (DXY) trading near 102.13. Separately, Japanese rate markets are now pricing about half the October Bank of Japan (BoJ) rate move they did on Monday, following the BoJ’s September meeting summary published at 23:50 GMT on Wednesday. The USD/JPY pair is heading for its third weekly gain in a row. Further details revealed the Bank of Japan (BoJ) raised its rate to 1.25% on September 18 by a 7-2 vote.

Tokyo’s core inflation rate (excluding fresh food) for September surged to 2.7%, up from 1.8% and surpassing the 2.4% forecast. Prices in Tokyo, excluding both food and energy, also rose to 3%. Separately, Japan’s jobless rate for August increased to 2.5% from 2.4%. Following this data, the USD/JPY pair is edging lower below the 158.00 mark during the Asian session on Friday, though it remains near its weekly high.

The USD/JPY pair briefly fell to 156.95 on Friday following the release of the United States (US) employment report, but quickly recovered to trade around 157.65, down 0.28% on the day. This rebound was attributed to renewed Japanese Yen (JPY) weakness and an extension of a dip-buying pattern around the 157.00-156.50 area. Separately, new data showed Tokyo’s headline Consumer Price Index (CPI) for September rose 2.7% year-over-year, accelerating from 1.9% in August, while the CPI excluding fresh food also increased from 1.8% to 2.7% over the same period.