Yen rebounds from 18-month lows... Tensions rise in the foreign exchange market amid warnings of Japanese authorities' intervention

Source: BlockMedia Original Title: [Forex] Yen rebounds from 18-month lows… Tensions rise as Japan warns of intervention Original Link: https://www.blockmedia.co.kr/archives/1032436

Market Overview

In the New York foreign exchange market, the Japanese yen rebounded from an 18-month low against the dollar. The mention of possible Japanese government intervention and the prospect of early general elections heightened tensions in the forex market. Meanwhile, the US dollar maintained strength against other major currencies based on expectations of the Federal Reserve holding interest rates steady, though it slightly declined on an index basis.

Yen Exchange Rate Movements

The USD/JPY exchange rate fell by 0.43% to 158.46 yen(yen strength) compared to the previous trading day. During the session, it rose to as high as 159.45 yen, the highest since July 2024, but later declined as warnings of Japanese intervention influenced the market, reducing the decline.

Japanese Finance Minister Shunichi Katayama emphasized, “We are prepared to take appropriate measures against excessive volatility in the foreign exchange market,” adding, “No options are off the table.” Although no concrete physical intervention has yet occurred, high-level government statements appear to have influenced the market to some extent.

Political Uncertainty and Fiscal Outlook

This yen movement is also intertwined with increasing political uncertainty in Japan. Speculation has arisen that Prime Minister Fumio Kishida, supported by high approval ratings, may push for early elections, fueling concerns over potential fiscal expansion and increased government bond issuance, which in turn has contributed to the yen’s weakness.

Chief Market Strategist Cal Shamoto Kopei commented, “Increased fiscal spending and expectations of rising interest rates are exerting downward pressure on the yen,” but added, “This trend is somewhat offset by warnings of Japanese intervention.”

Technical Assessment

Some market experts have assessed that the yen’s weakness has reached an excessively technical level. The LMAX Group reported, “From a technical perspective, signals of a correction are detected after forming highs over the past few years,” and “While there is room for short positions after liquidating speculative long positions, the warnings of intervention create risks on both sides.”

Background of Dollar Strength

The dollar continued its upward trend supported by expectations that the Federal Reserve(Fed) will keep interest rates unchanged. Since the US unemployment rate fell to 4.4% in December last year, Morgan Stanley has pushed back its first rate cut forecast from the original 1–4 months to 6–9 months.

James Rodes, Head of Global FX Strategy at Morgan Stanley, stated, “With the unemployment rate low, the labor market is less likely to drive an immediate rate cut,” and noted, “This somewhat weakens the outlook for dollar depreciation.”

Risk Factors

Recently, President Trump has publicly pressured the Fed over its interest rate policies, raising concerns about the independence of the Fed, which has been cited as a negative factor for the dollar.

The US Producer Price Index (PPI) and retail sales data released today exceeded market expectations, but market reactions were limited. The Fed’s Beige Book indicated that economic activity has been gradually increasing in most regions, with little change in employment.

Geopolitical tensions also pose a burden on the forex market. Iran has issued warnings that it could strike US military bases in response to potential US military intervention, raising concerns that Middle East risks could impact the forex market as well.

Other Currency Movements

The dollar index(DXY) fell by 0.06% to 99.13, while the euro/dollar exchange rate remained slightly weak at 1.1637 dollars, down 0.03% from the previous day. Alternative assets such as Bitcoin continue to rise amid risk-averse sentiment.