FX.co ★ Japanese Yen Rebounds on Likely Intervention

The Japanese yen rebounded sharply on Thursday, strengthening beyond 160 per dollar after having touched a 40‑year low of 164 in the previous session, in a move widely attributed to intervention by the Ministry of Finance (MoF). The suspected action follows an estimated $74.2 billion in currency sales by the MoF in the month through May 27th. This intervention helped ease mounting pressure on the yen stemming from elevated energy prices, fiscal worries, and wide interest rate differentials.

Surging LNG and gasoline prices, driven in part by the conflict involving Iran, had boosted demand for dollars from Japan’s energy importers, squeezing corporate margins and weighing on economic growth, which in turn put additional downward pressure on the yen. At the same time, fiscal concerns intensified after the domestic tax panel reiterated a proposal to cut the consumption tax on food to 1% from the current 8%, a move that would likely require additional debt issuance and increase the supply of yen.

Looking ahead, the Bank of Japan is expected to leave interest rates unchanged at its meeting tomorrow, following a rate hike in June. While the BoJ is still anticipated to raise rates further later this year, expectations of continued tightening by the US Federal Reserve are seen limiting any meaningful narrowing of the Japan–US interest rate gap.