Yen extends losses to four-month trough as authorities grow anxious

The Japanese yen fell further in Asian markets on Friday, extending losses for a third consecutive day against the US dollar and reaching its lowest level in four months. The currency dropped below the key psychological barrier of 150 yen per dollar, nearing its steepest weekly loss in 2025.

Japanese authorities expressed concern about recent forex movements, although Bank of Japan Governor Kazuo Ueda downplayed the direct impact of yen levels on inflation expectations.

Meanwhile, the US dollar continued to strengthen against a basket of global currencies ahead of the release of US nonfarm payrolls data, which may provide further clues about the likelihood of a Federal Reserve rate cut in September.

Price Overview

• USD/JPY rose 0.15% to ¥150.92 — the highest since March 28 — up from the session open at ¥150.72, after hitting an intraday low of ¥150.60.

• On Thursday, the yen dropped 0.85% against the dollar following stronger-than-expected US PCE inflation data.

• For July, the yen declined 4.8% against the dollar — its worst monthly performance in 2025, and the sharpest drop since December 2024 — amid easing demand for the currency as a safe haven, progress in US trade negotiations, and political uncertainty in Japan following the ruling party's Senate election defeat.

Weekly Performance

For the week ending today, the yen is down approximately 2.2% against the US dollar and is on track for its third weekly loss this month and its worst weekly drop in 2025 since early December 2024.

Bank of Japan

• As expected, the Bank of Japan on Thursday left its policy settings unchanged, maintaining interest rates at 0.50% — the highest since 2008 — for the fourth consecutive meeting.

• In its policy statement, the BoJ signaled it would consider a rate hike if economic and price conditions align with projections.

• The central bank raised its FY2025 core CPI forecast from 2.2% to 2.7%, adjusted FY2026 expectations from 1.8% to 1.7%, and lifted its FY2027 projection from 1.9% to 2.0%.

• Governor Ueda said the recent US–Japan trade agreement was a "significant step forward" in reducing uncertainty and supporting economic stability.

• Market pricing reflects a 50% probability that the BoJ will raise rates by 25 basis points in its September meeting. Investors await further inflation, employment, and wage data from Japan to reassess the outlook.

Japanese Authorities

Finance Minister Katsunobu Kato reiterated concerns over recent forex volatility, particularly after the yen hit a 4-month low. In a Friday press conference, he emphasized the importance of stable exchange rates reflecting fundamentals and warned of speculative-driven movements.

Governor Ueda echoed this sentiment on Thursday, saying that current exchange rate levels are unlikely to have a significant direct impact on inflation projections.

US Dollar

The US Dollar Index rose 0.1% on Friday to 100.15, marking its seventh straight gain and the highest level in two months, reflecting continued strength in the greenback against major currencies.

This rally comes amid fading recession fears in the US, bolstered by recent trade agreements with Japan and the EU, and diminishing expectations for a September rate cut as strong economic data and a hawkish Fed weigh on market sentiment.

Investors are now focused on July’s US jobs report due later today, a key metric for the Fed’s upcoming policy decisions.

Economies.com Outlook

• We at Economies.com expect the yen to remain under pressure against the US dollar, particularly if the upcoming US jobs data exceeds market expectations.