The Japanese yen has rebounded toward 161 per US dollar on Friday, extending its recovery after rebounding from 39-year lows above 162 earlier this week, as reported by Business Standard. This represents a significant turnaround from the currency's historic decline that saw it reach its weakest level against the US dollar since 1986. The yen had previously sunk to a fresh 40-year high of 162.66 yen on Tuesday and fetching 162.50 in midday trading in Tokyo on Thursday, marking a dramatic shift from its previous rally that followed a US-engineered currency accord. The currency was set for a nearly 2% drop against the dollar for the second quarter, marking its fourth consecutive quarterly loss - the longest losing streak since 2022 when it fell for seven consecutive quarters.
Finance Minister Satsuki Katayama reiterated that authorities stand ready to intervene at any time to support the yen, with the recovery further fueled by reports suggesting Japan may stop signaling intervention plans in advance, as reported by Business Standard. This strategic shift represents a departure from the calibrated jawboning that preceded previous interventions, with officials now signalling a more targeted campaign to squeeze speculators and raise the cost of betting against the battered yen. The Ministry of Finance (MOF) could step in abruptly to wipe out speculative yen positions, with officials avoiding any suggestion of a specific "line in the sand" exchange-rate level that would trigger action. This strategy, coupled with the Bank of Japan's continued hawkish stance, signals a coordinated effort to curb excessive yen depreciation and manage inflation concerns.
The yen's recovery was further supported by a weaker U.S. dollar, following softer-than-expected U.S. jobs data, which reduced expectations of further Federal Reserve interest rate hikes, according to Business Standard. Traders are now pricing in a 67% chance that the Fed could hike rates in September, up from a 20.5% probability a month ago, with the 10-year U.S. Treasury yield rising 9 basis points intraday on Tuesday before ending the session 4.8 basis points higher. The 2-year yield was up 3 basis points and last stood at 4.1702%. Growing expectations of US rate hikes continue to pressure the yen, as traders increasingly price in the possibility of further Federal Reserve rate hikes later this year. Rising short positions have contributed to the yen's weakness, with latest US regulatory data showing $11.3 billion in net short bets, close to a two-year high, as traders have become more confident in the yen's continued decline.
According to Reuters, the yen's historic decline is driven by three primary factors that have created sustained pressure on the currency. First, the US dollar has strengthened significantly, with the dollar index recovering from previous session losses to trade at 101.38, tracking for a 1.4% quarterly gain after rising 1.6% in the opening quarter of 2026. Market positioning data shows investors have steadily built record bullish bets on the dollar in the first half of the year, reflecting strong conviction in its continued strength. Second, growing expectations of US rate hikes continue to pressure the yen, as traders increasingly price in the possibility of further Federal Reserve rate hikes later this year. Higher US yields, driven by expectations of continued Fed tightening, have boosted the dollar's attractiveness against the low-yielding Japanese currency. Third, rising short positions have contributed to the yen's weakness, with latest US regulatory data showing $11.3 billion in net short bets, close to a two-year high, as traders have become more confident in the yen's continued decline.
Market strategists are closely watching the upcoming U.S. public holiday on Friday as a potential window for Tokyo to intervene, as thinner liquidity conditions could magnify the impact of any intervention, as reported by The Economic Times. "The timing of intervention is difficult. The purpose would be to hit speculators hard so if needed, authorities will step in," said one source, with another adding "It's not about yen levels" but more about how best to prevent excessive falls in the currency. Finance Minister Satsuki Katayama also avoided escalating official rhetoric on Tuesday despite the yen's fall to fresh lows, repeating only that Japan stood ready to "respond appropriately" to currency moves at any time. "By refraining from commenting on the yen, Mimura is probably trying to make it harder for markets to gauge the next intervention timing," said Rinto Maruyama from SMBC Nikko Securities. The dollar index eased 0.02% to 101.38 on Thursday, with the euro trading at $1.138 and sterling edging 0.06% higher to $1.3279.
