Yen tries to recover from recent lows under supervision of Japanese authorities

The Japanese yen rose in Asian trading on Monday against a basket of major and minor currencies, recouping part of the sharp losses it suffered on Friday against the US dollar, and beginning to recover from a four-week low, supported by relatively active buying from lower levels and by warnings from Japanese government officials about the possibility of intervention in the foreign exchange market.

On Friday, the Bank of Japan raised its benchmark interest rate by a quarter of a percentage point to 0.75%, the highest level in three decades, in a move that was widely expected by markets.

The accompanying monetary policy statement reinforced expectations that normalization and further rate hikes will continue if economic forecasts materialize. However, comments from Governor Kazuo Ueda were less hawkish than anticipated, leading to a decline in expectations for Japanese rate hikes during the first half of next year.

Price overview

The Japanese yen exchange rate today saw the dollar fall 0.3% against the yen to ¥157.23, from an opening level of ¥157.68, after recording an intraday high of ¥157.71.

The yen ended Friday’s session down 1.45% against the dollar, marking its second loss in the past three days and its largest daily decline since October 6, driven by comments from Kazuo Ueda.

The yen also posted a weekly loss of 1.2% against the dollar last week, its second consecutive weekly decline, amid weakening expectations for Japanese interest rate hikes in the first half of next year.

Japanese authorities

Early Monday morning in Tokyo, Japan’s top currency diplomat Atsuki Mimura and government spokesman Minoru Kihara expressed concern over “sharp and volatile” moves in the foreign exchange market.

They confirmed that Japanese authorities are closely monitoring currency developments, warning that officials are prepared to take appropriate action when necessary, in a clear signal of potential intervention to curb excessive volatility.

Japanese interest rates

The Bank of Japan’s policy board unanimously decided last week to raise interest rates by 25 basis points to 0.75%, the highest level since September 1995, marking the second rate hike in 2025 following an earlier move in January.

The Bank of Japan said that, given that real interest rates remain at extremely low levels, it will continue to raise rates if its economic and price forecasts are met.

Governor Kazuo Ueda indicated that the bank will examine the so-called neutral interest rate, in light of how the economy and prices respond to changes in interest rates, signaling a flexible, data-dependent approach aligned with actual economic conditions.

Following the bank’s meeting and Ueda’s remarks, market pricing for a quarter-point rate hike at the Bank of Japan’s January meeting remained below 20%.

To reprice those expectations, investors are awaiting further data on inflation, unemployment, and wage levels in Japan.

Views and analysis

Tony Sycamore, market analyst at IG in Sydney, said that while the Bank of Japan’s statement noted that real yields remain “significantly low,” which could signal further monetary tightening in the future, Governor Ueda’s press conference offered little new, merely reiterating the data-dependent approach.

Sycamore added that the lack of clearer guidance on the future pace of Japanese interest rate hikes disappointed markets, triggering selling pressure on the yen.