Yen Weakens Toward 40-Year Low as Traders Test Japan's Intervention Resolve

The Japanese yen weakened on Tuesday, trading near multi-decade lows as currency traders tested the resolve of Japanese authorities to support the currency. The risk of a surprise yen-buying move by Tokyo, however, helped to keep losses in check.

Yen Under Renewed Pressure

In early Asian trading, the yen was on the weaker side of 162 per dollar, according to a report from Reuters. The currency also languished near its lowest level against the British pound since 2007, at 217.09, while the euro traded at 185.47 yen.

The renewed pressure follows a period where traders had anticipated potential intervention to support the yen, particularly during the less-liquid U.S. holiday trading session. "No action has been taken, contributing to the yen giving back some of its recent gains," said Lee Hardman, senior currency analyst at MUFG, in comments cited by Reuters.

Dollar Eases on Fed Outlook

The yen's decline occurred even as the broader U.S. dollar softened amid revised expectations for Federal Reserve monetary policy. A recent U.S. jobs report that fell short of expectations has led investors to scale back bets on future interest rate hikes.

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Markets are now pricing in approximately 29 basis points worth of Fed rate hikes by December, down from about 38 bps a week ago. Reflecting this sentiment, the U.S. dollar index, which measures the currency against a basket of peers, stood at 100.86.

What to Watch

Market participants are now turning their attention to the minutes from the Federal Open Market Committee’s (FOMC) June meeting, due on Wednesday, for further insight into the U.S. rate outlook.

Carol Kong, a currency strategist at Commonwealth Bank of Australia, told Reuters that the minutes may be "less informative than previous minutes," noting that the Fed chair typically avoids providing strong forward guidance. Elsewhere, the euro edged higher to $1.1442, and the British pound rose to a more than two-week high of $1.34005.