Yen Nears 40-Year Low as Lack of Intervention Emboldens Traders

The Japanese yen weakened on Tuesday, trading near a 40-year low against the U.S. dollar, as the absence of currency intervention from Tokyo emboldened traders to resume selling the currency.

Intervention Watch Continues

The yen traded on the weaker side of 162 per dollar in early Asian markets. It also languished near its lowest level against the British pound since 2007 at 217.09, while the euro climbed to 185.47 yen, according to Reuters data.

The renewed pressure comes after speculation that Japanese authorities might step in to support the yen during the less-liquid U.S. holiday period failed to materialize. "No action has been taken, contributing to the yen giving back some of its recent gains," said Lee Hardman, senior currency analyst at MUFG.

While the persistent risk of a surprise yen-buying operation by the Japanese government is keeping losses from accelerating, traders appear increasingly willing to test Tokyo's resolve.

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Dollar Softens on Fed Outlook

The yen's slide occurred despite broader softness in the U.S. dollar, which has been weighed down by shifting expectations for Federal Reserve monetary policy. A recent U.S. jobs report that came in below forecasts has led investors to pare back bets on further interest rate hikes this year.

Market pricing now implies roughly 29 basis points worth of Federal Reserve rate hikes by December, down from about 38 basis points a week ago. The U.S. Dollar Index, which measures the currency against a basket of peers, was last at 100.86.

Investors are now looking ahead to the minutes from the Federal Open Market Committee’s (FOMC) June meeting, due on Wednesday, for further insight into the central bank's rate outlook. Carol Kong, a currency strategist at Commonwealth Bank of Australia, noted that the market may be underpricing the extent of future Fed tightening.