Yen resumes losses under supervision of Japanese authorities

The Japanese yen retreated in Asian markets on Thursday against a basket of major and secondary currencies, resuming its losses that were temporarily halted yesterday against the US dollar, and moving closer once again to its lowest levels in 18 months. This decline comes under the watch of Japanese authorities, who have warned against excessive movements in the local currency in the foreign exchange market.

In the latest opinion polls on the path of Japanese monetary policy, economists said the Bank of Japan would most likely prefer to wait until July before raising the key interest rate again, with more than 75% expecting it to rise to 1% or higher by September.

Price Overview

• Japanese yen exchange rate today: The dollar rose against the yen by 0.15% to ¥158.65, from the opening price of ¥158.43, recording a low of ¥158.19.

• The yen ended Wednesday’s trading up 0.4% against the dollar, marking its first gain in the past seven days, supported by recovery buying after it earlier hit an 18-month low at ¥159.45 per dollar.

Japanese Authorities

Japan’s Finance Minister Satsuki Katayama issued another verbal warning on Wednesday, saying officials would take “appropriate action against excessive movements in the foreign exchange market without ruling out any options.”

Foreign exchange strategy analysts at OCBC said in a note that verbal warnings helped temporarily curb yen weakness, but investors are likely to test how willing the authorities are to back up their words with action.

They added that for a genuine recovery in the yen, markets need a more hawkish stance from the Bank of Japan and clarity on Japan’s fiscal and political outlook.

Early Elections

Japanese Prime Minister Sanae Takaichi intends to dissolve the House of Representatives next week and call for early parliamentary elections, to strengthen her popular mandate and secure a comfortable parliamentary majority that would ensure the passage of the 2026 fiscal year budget and the proposed economic reforms.

Karl Schamotta, Chief Market Strategist at Corpay in Toronto, said Takaichi’s plan to capitalize on her strong popularity by calling early elections translates into rising bets on a recovery in the Japanese economy, increased government spending, and higher yields.

Schamotta added that all of this is already translating in the market into downward pressure on the yen, which is naturally met by threats of intervention from the authorities.

Japanese Interest Rates

• A Reuters poll: The Bank of Japan will raise interest rates again to 1% or more by the end of September, possibly by July.

• Economists say the Bank of Japan will most likely prefer to wait until July before raising the key interest rate again, with more than 75% expecting it to rise to 1% or higher by September.

• Pricing for the probability of the Japanese central bank raising interest rates by a quarter percentage point at the January meeting remains steady below 10%.

• The Bank of Japan meets on January 22–23 to review economic developments in the country and determine the appropriate monetary tools for this sensitive phase facing the world’s fourth-largest economy.