Yen finds footing near 40-year low as traders weigh intervention risks

SINGAPORE — The yen found renewed strength on Friday (June 26) with traders wary of the intervention risks heading into the weekend, while the dollar weakened after the latest economic data and Federal Reserve comments led markets to pare rate-hike bets.

The Japanese currency strengthened 0.1 per cent against the dollar to 161.62 yen (S$209.33), rising from a two-year trough of 161.95 on Thursday. 

Breaching the 161.96 mark would take it to its weakest level since 1986.

However, the yen remained on the weaker side of 160, which many in the market consider a line in the sand for Japanese officials.

"The risk of policy intervention from Japanese authorities is elevated," analysts from Mitsubishi UFJ wrote in a research report.

For the dollar-yen pair, "a sustained break higher would likely generate broader negative spillovers across Asia FX via sentiment and positioning channels", they said.

Some banks accelerated their timeline for rate hikes from the Bank of Japan after data showed on Friday that core inflation in Tokyo accelerated in June, providing additional support for the yen.

The data suggest "second-round effects from higher oil prices are increasing, while Bank of Japan officials are sounding more hawkish", analysts from ING wrote in a research note.

"With core prices likely to accelerate going forward, we have brought forward our BOJ rate-hike call to October from December."

The US dollar index, which measures the greenback's strength against a basket of six currencies, was down 0.1 per cent at 101.38 to mark a second consecutive day of losses.

The euro was flat at US$1.1373 (S$1.47), while the British pound was up 0.1 per cent at US$1.3197.

The Australian dollar eased 0.3 per cent to US$0.6892, while its kiwi counterpart slipped 0.2 per cent to US$0.5641.

A flurry of US economic data on Thursday that included a reading on inflation softened expectations for rate hikes from the Fed this year.

The Commerce Department said the personal consumption expenditures price index (PCE) surged 4.1 per cent in the 12 months through May for the largest increase and the first reading above 4.0 per cent since April 2023, but it matched expectations of economists polled by Reuters.

Even with the elevated inflation, consumer spending was unfazed, rising 0.7 per cent in May, up from 0.4 per cent in April and above the 0.6 per cent estimate.

After the data, Chicago Federal Reserve President Austan Goolsbee said there was a "glimmer of hope" on services inflation, although underlying price pressures are still too high.

Federal Reserve Bank of New York President John Williams said that inflation pressures are likely to moderate this year, although they remain too high.

Fed funds futures are pricing an implied 69 per cent probability that the US central bank will hold interest rates at its next two-day meeting ending on July 29, compared to a 65.8 per cent chance a day earlier, according to the CME Group's FedWatch tool.

Bitcoin was up 0.7 per cent at US$59,802.13, recovering some losses after reaching the lowest since September 2024 earlier this week, while ether slid 0.4 per cent to US$1,552.21 to wallow at its lowest levels since the start of the month.

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