Japanese Yen Weakens as Usd Strengthens, Intervention Looms

• Japanese Yen’s downside could be restrained as Japanese authorities may intervene to limit the currency’s weakness.
• Japan’s Finance Minister Katayama said authorities stand ready to act in FX markets.
• The US Dollar strengthens as expectations for near-term Fed rate cuts fade.

USD/JPY recovers losses from the previous session, trading near 159.40 during Asian hours on Tuesday. However, the upside of the pair may be limited as the Japanese Yen (JPY) could find support from potential intervention by Japanese authorities. Japan’s Finance Minister Satsuki Katayama said on Tuesday that financial markets are experiencing elevated volatility, adding that the government is ready to respond if needed, including in the foreign exchange market.

Meanwhile, Bank of Japan (BoJ) Governor Kazuo Ueda stated that underlying inflation is gradually moving toward the bank’s 2% target. Ueda added that the central bank will guide monetary policy appropriately to achieve stable and sustainable inflation. However, the BoJ is expected to keep interest rates unchanged at 0.75% on Thursday while maintaining the option for further policy tightening.

The USD/JPY pair strengthens as the US Dollar (USD) gains on fading expectations for near-term Federal Reserve (Fed) interest rate cuts amid rising inflation concerns tied to the Middle East conflict. Surging crude oil prices have raised fears of higher inflation, reducing prospects for near-term monetary easing.

Markets widely expect the US central bank to keep its benchmark interest rate unchanged in the 3.50%–3.75% range at Wednesday’s meeting, according to the CME FedWatch Tool. If the Fed holds rates steady, it would mark the second consecutive pause after the central bank’s previous easing cycle.