Yen Nears Multi-Decade Low as Traders Test Japan's Intervention Resolve

The Japanese yen resumed its decline in early Tuesday trading, hovering near multi-decade lows as the absence of currency market intervention from Tokyo emboldened traders to push the currency lower. While the persistent risk of official action by Japanese authorities kept losses in check, the currency remains under significant pressure.

Yen Under Renewed Pressure

The yen weakened to the soft side of 162 per dollar in Asian trading. It also languished near its lowest level against the British pound since 2007, trading at 217.09, and stood at 185.47 against the euro.

The recent slide follows a period of speculation that Japanese authorities might step in to support the currency.

• "There had been speculation at the end of last week that Japan could intervene again to support the yen during the U.S. holiday when trading conditions were less liquid," said Lee Hardman, a senior currency analyst at MUFG.
• Hardman noted that because "no action has been taken," it contributed to "the yen giving back some of its recent gains."

Dollar Softens on Fed Rate Outlook

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In the broader currency market, the U.S. dollar was on weaker footing against a basket of its peers, with the Dollar Index trading at 100.86. The euro edged higher to $1.1442, while the British pound reached a more than two-week high of $1.34005.

This dollar softness follows a recent U.S. jobs report that came in below expectations, causing investors to pare back bets on Federal Reserve rate hikes. Markets are now pricing in approximately 29 basis points of Fed rate increases by December, a significant reduction from the 38 bps expected just a week ago, according to Reuters data.

FOMC Minutes in Focus

Investors are now looking ahead to the release of the Federal Open Market Committee’s (FOMC) June meeting minutes on Wednesday for further clues on the U.S. interest rate outlook. However, some analysts are managing expectations.

Carol Kong, a currency strategist at Commonwealth Bank of Australia, suggested that current market pricing for Fed hikes is likely "a little bit underpriced." Regarding the upcoming minutes, Kong said, "I think the minutes tomorrow will probably be less informative than previous minutes," alluding to the Fed's general reluctance to provide explicit forward guidance.