Yen at brink of 40-year low puts markets on intervention watch

The yen traded near a 38-year low, prompting investors to anticipate potential Japanese intervention to defend its currency, amid thin US market liquidity.

​The yen traded precariously near the ​weakest level in nearly four ‌decades ​on Friday, putting investors on guard for potential intervention from Japan to defend its currency.

With the Juneteenth trading break ‌looming in the United States, thin liquidity conditions could open the door for Japan to step into markets again, as it did during its own holidays in late April ‌and early May, when it intervened to the tune of 11.7 trillion ‌yen ($72.54 billion). The yen changed hands at 161.25 per dollar in early trading in Tokyo after hitting 161.81 overnight, its weakest since July 2024, wiping out all gains from the previous intervention bout following ⁠a ​hawkish tilt by ⁠the U.S. Federal Reserve. A break above the currency pair's 2024 high of 161.96 would send the ⁠yen to its weakest level since 1986.

The yen has remained under downward pressure despite ​the Bank of Japan's latest rate hike this week, as the move has ⁠done little to shift the fundamental drivers in foreign exchange markets. Japanese rates are still far below ⁠U.S. ​levels, keeping the yield gap wide, supporting the dollar and fuelling carry trades where investors borrow cheaply in yen to chase higher returns elsewhere. Markets expect the ⁠BOJ to raise rates again by the end of this year. But that has ⁠failed to ⁠dispel pessimism in the yen, with speculative net short positions in the currency sitting at the highest level since July 2024, ‌data showed ‌on Friday.

($1 = 161.3000 yen)