Yen Defies Record Intervention as Wait for BOJ Hike Raises Risks
Yen traders face a heightened risk of intervention over the next two weeks after Japan’s currency defied historic attempts to prop it up.
The currency underperformed all its Group-of-10 peers in May despite by Japan. That puts it in danger of weakening to 160 against the dollar well before any support comes from the Bank of Japan in the form of an expected interest hike on June 16.
“Intervention is buying time, not turning the tide — the real pivot has to come from the BOJ,” said Masahiko Loo , a senior fixed income strategist at State Street Investment Management.
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Leveraged funds and asset managers boosted their bearish yen wagers to the most since July 2024, according to calculations based on Commodity Futures Trading Commission data for the week through May 26.
The still-wide interest-rate differential between Japan and the US has weighed on the yen, as the BOJ has been slow to hike rates despite the widespread return of inflation.
Investors are honing in on the central bank’s June 16 policy decision, with overnight index swaps showing about a 78% chance of a hike at that time.
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The yen’s weakness despite the massive amount of money spent by the finance ministry “highlights diminishing marginal effectiveness” of intervention, State Street’s Loo said.
The war in the Middle East has also added pressure on the currency as elevated oil prices stoke inflation fears. climbed on Monday as negotiations over a permanent US-Iran ceasefire showed little sign of a breakthrough.
The yen is hovering near its weakest level since April 30, keeping traders on alert for further intervention. Minister of Finance Satsuki Katayama on Friday that authorities can step into the market if there’s volatility or evidence of speculative moves.
Japan’s currency traded at 159.49 against the dollar late morning on Monday in Tokyo. It fell 1.7% last month.
“The yen could definitely weaken past 160 against the dollar, and then the finance ministry would need to intervene again,” said Marito Ueda , managing director at SBI FX Trade. The finance ministry could increase the effectiveness of intervention if it’s paired with a rate hike by the BOJ, or hawkish signaling from the central bank, Ueda said.
