The yen remained just below the significant psychological level of 145 per U.S. dollar on Monday, while the dollar faced some downward pressure following last week’s U.S. economic data, which had directed at a slight easing in mass inflation and the recorded consumer spending.
At the beginning of the second half of the year, the yen weakened by 0.09% to 144.45 against the dollar, experiencing a 9% loss in the first half of the year. Against the euro, the yen hovered around 157.66, slightly below the 15-year low of 158 it reached last week. It also climbed to 183.58 per sterling, its highest level since December 2015.
On Friday, the Asian currency briefly surpassed 145 per dollar, hitting a near eight-month low of 145.07, as investors remained watchful of potential intervention by Japanese authorities in the currency market.
Finance Minister Shunichi Suzuki stated that Japan would take appropriate measures in response to excessive weakening of the yen, aligning with the comments from government ministers and officials.
Suzuki’s remarks helped limit the yen’s losses on Friday. According to Marc Chandler, chief market strategist at Bannockburn Forex, intervention can be seen as an escalation ladder, with verbal intervention at the lower rungs and coordinated intervention at the higher rungs.
Japan intervened in the market in September, the first time since 1998, when the yen depreciated to 145 per dollar due to the Bank of Japan’s decision to maintain an ultra-loose policy.
Another intervention occurred in October when the yen dropped to a 32-year low of 151.94.
However, a central bank survey showed an improvement in Japanese business sentiment in the second quarter, indicating a steady recovery as supply constraints eased and pandemic restrictions were lifted, leading to increased factory output and consumption.
This week, investors will focus on the minutes of the U.S. Federal Reserve’s June meeting, scheduled to be released on Wednesday.
While the central bank decided to keep interest rates unchanged, it hinted at the possibility of raising borrowing costs by up to 0.5% by the end of the year.
Although economic data from last week portrayed a resilient U.S. economy that alleviated concerns of a recession, it also fuelled expectations that the Fed would maintain its hawkish stance.
However, Friday’s data revealed lower-than-expected inflation in May, coupled with a sudden deceleration in consumer spending, suggesting that the Fed’s rate hikes are starting to have the desired effect.
According to Citi strategists, the U.S. economy is not slowing down as predicted, with strong job growth keeping the labour market tight and providing the purchasing power necessary for driving services consumption.
Market expectations currently indicate an 84% chance of a 25 basis point rate hike by the Fed in its July meeting, as indicated by the CME FedWatch tool.
Additionally, investor attention will be directed towards the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) and the monthly payrolls report later this week, which will provide further insights into the U.S. labour market.
NatWest Markets strategists anticipate the end of the rate-hiking cycle, but they note that if there is insufficient progress in inflation data, officials may opt for another 25 basis point hike in July.
They emphasize that the decision will rely heavily on data.
The dollar, measured against a basket of currencies, stood at 102.86, reflecting a 0.4% decline on Friday.
After a modest gain of nearly 2% in the first half of the year, the euro had a muted start to the third quarter, reaching $1.0916, a 0.05% increase. Sterling remained flat on the day, with a value of $1.
In conclusion, the yen’s position just below the psychologically significant level of 145 per U.S. dollar, coupled with the dollar’s retreat following U.S. economic data, reflects the ongoing dynamics in the currency market. Investor focus remains on the potential for Japanese intervention and the Federal Reserve’s monetary policy decisions.
As market participants navigate these factors and closely monitor economic indicators, the currency landscape is likely to experience further shifts and fluctuations in the coming weeks.