Yen Weakens Past 162 per Dollar as Traders Test Tokyo's Intervention Resolve

The Japanese yen weakened in Tuesday trading, languishing near multi-decade lows as currency traders tested the resolve of Japanese authorities to intervene in the market. The lack of any recent yen-buying action from Tokyo has emboldened investors to push the currency lower, though the persistent threat of intervention is keeping losses in check.

In early Asian trade, the yen was trading on the weaker side of 162 per dollar. The currency also approached its lowest level against the British pound since 2007, trading at 217.09, and stood at 185.47 against the euro after a 0.5% rise for the single currency in the previous session.

Market Tests Intervention Line

Market sentiment shifted after Japanese authorities did not step in to support the currency during the recent U.S. holiday, a period of lower liquidity that some analysts had flagged as a potential window for action.

"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, but no action has been taken, contributing to the yen giving back some of its recent gains," said Lee Hardman, a senior currency analyst at MUFG, in a note cited by Reuters.

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Dollar Softens on Fed Outlook

While the yen fell, the U.S. dollar was on weaker footing against a basket of other major currencies following a recent U.S. jobs report that came in below expectations. The data has led investors to scale back bets on the pace of Federal Reserve interest rate hikes this year.

Market pricing now implies approximately 29 basis points worth of Fed rate cuts by December, a decrease from about 38 basis points a week ago. Still, some analysts believe the market may be underestimating the central bank's resolve. "We still think that the FOMC will have to start tightening from December," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

Investors are now looking ahead to the release of the minutes from the Federal Open Market Committee’s (FOMC) June meeting on Wednesday for further clues on the U.S. rate outlook.