Yen hovers near three-week low under supervision of BOJ

Yen declined in Asian trade on Friday against a basket of major rivals, extending losses for the third straight session against the dollar and almost touching three-week lows, under close supervision of the Bank of Japan which could intervene at any time. 

Recent government data showed inflationary pressures have receded on BOJ policymakers, further damaging the odds of Japanese rate hikes this year. 

The Price

The USD/JPY pair rose 0.2% today to 157.15 yen, with a session-low at 156.88, after losing 0.1% on Thursday, the second loss in a row, plumbing three-week lows at 157.20. 

Earlier US manufacturing, services, and labor data beat expectations, in turn hurting the odds of a Fed rate cut in the summer.

The 160 Red Line 

The 160 has become a red line for the Bank of Japan, so it’s likely it’ll intervene if the USD/JPY pair threatens to fall once again below it. 

Japanese authorities intervened in late April and pumped $60 billion in the forex market to bring the yen higher against main rivals after it hit 1990 lows. 

Transient Intervention 

Analysts believe that any intervention by the Bank of Japan would only lead to a transient spike in yen’s value, as the fundamentals of the stark US-Japan interest rate gap continues to favor the dollar against the yen. 

Rate Gap

The current US-Japan interest rate gap stands at 540 basis points in favor of the US.

Such a gap could shrink once or twice this year as the Federal Reserve prepares to cut interest rates and ease policies.

Japanese Inflation 

Earlier government data showed Japan’s consumer prices, excluding fresh food, rose 2.2% y/y in April, matching expectations, after rising 2.6% in March.

Slower prices indicate that inflation has been largely brought under control, reducing pressure on the BOJ.