Yen posts weekly loss, traders bet on further intervention
Japanese currency slides to three-week low as speculation grows over additional government or central bank action to curb depreciation.
The Japanese yen weakened to a three-week low against the dollar on Friday, extending its weekly decline and fueling market speculation that authorities may step in to support the currency.
The yen fell 0.3% to 157.10 per dollar in late New York trading, its lowest level since early April, after a five-day losing streak. The currency has now dropped about 2.5% this week, marking its weakest performance since mid-March.
Traders cited thin liquidity conditions ahead of the U.S. market holiday on Monday as a factor amplifying the move. However, the broader trend reflects ongoing concerns over Japan’s monetary policy divergence with the Federal Reserve, where U.S. rates remain elevated while Japan maintains ultra-low borrowing costs.
Japanese officials have repeatedly warned of their readiness to act against excessive currency moves, with Finance Minister Shunichi Suzuki stating this week that authorities are closely monitoring currency fluctuations. The last confirmed intervention to prop up the yen occurred in October 2022, when the currency briefly surged after authorities spent roughly $60 billion to stem its decline.
Market participants are pricing in a higher probability of another round of intervention, with options data indicating increased demand for yen calls expiring in the coming weeks. The implied volatility for short-dated yen options has also risen, signaling heightened expectations for volatility.
Analysts at Goldman Sachs noted that while the risk of intervention has increased, the timing and scale remain uncertain given the persistent policy gap between Japan and the U.S. The bank added that any intervention would likely be a temporary measure unless accompanied by a shift in Japan’s monetary policy stance.
The yen’s depreciation has contributed to rising import costs for Japan, where energy and food prices remain sensitive to currency fluctuations. The Bank of Japan has maintained its negative interest rate policy to support economic growth, but the weak yen has complicated efforts to control inflation.
Investors will closely watch next week’s U.S. inflation data and Bank of Japan policy meeting for further signals on the currency’s trajectory.
Sophie covers currency markets and central bank policy across Europe, with a focus on how rate decisions ripple through FX pairs. She has been tracking the ECB's policy path since the start of the current easing cycle.
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