Investing.com — The Japanese yen rose sharply late Thursday, with the USDJPY pair falling to a nearly one-month low amid speculation about possible government intervention in the currency market.
The yen’s strength also came as softer-than-expected consumer price index data hit the US and raised expectations for a Federal Reserve rate cut in September.
The pair, which measures the amount of yen needed to buy one dollar, settled around 159 in early Friday trading after falling more than 2% on Thursday. The pair was trading around a 38-year high of around 162 yen earlier this week.
Traders had expected the USDJPY to reach 162 as a line in the sand for government intervention.
The pair’s sharp decline led to some speculation that the Japanese government had intervened in the currency markets. Top diplomat Masato Kanda, who had previously spearheaded the yen intervention, gave few clues as to whether the government had intervened this time.
According to local media reports, the Bank of Japan had implemented an interest rate control for the yen against the euro; an action that could have heralded an intervention in the foreign exchange market.
The yen had weakened significantly last month after a series of weak Japanese economic data raised expectations that the BOJ will have little room to tighten policy further this year.
The BOJ had raised rates for the first time in 17 years in March, bringing them out of negative territory. But this move provided little support for the yen.
Mediocre inflation and weak business activity data, coupled with a sharp downward revision in first-quarter gross domestic product data, all played a role in doubts about the BOJ and yen weakness.
But the biggest point of pressure on the yen was high US interest rates, which kept the dollar positive. However, this view now appears to be softening as traders position themselves for a rate hike in September, especially after soft consumer price index inflation data on Thursday.
