Yen Near 40-Year Low - Market Awaits Possible Japanese Intervention

The Japanese yen approached its weakest level in nearly 40 years on Tuesday as the dollar continued to strengthen. This has intensified expectations that Japan's government may intervene in the foreign exchange market again to support the national currency.

The USD/JPY exchange rate, which shows how many yen are needed to purchase one dollar, was fixed at 161.58. This level is very close to the 2024 maximum of 161.96. A move above 162 would bring the rate to levels not seen since 1986.

The yen has depreciated by approximately 3% since the beginning of the year. The main source of pressure remains the significant interest rate differential between the United States and Japan. Despite the fact that Japan's central bank raised rates by 25 basis points last week, this step proved insufficient to stabilize the currency.

An additional factor remains expectations of fiscal stimulus and tax incentives in Japan, which has kept government bond yields near multi-year highs.

Market participants increasingly suspect that Tokyo will resort to foreign exchange intervention again. Japan's Finance Minister Satsuki Katayama and U.S. Treasury Secretary Scott Bessent held an online meeting on Monday, where they discussed the historically weak yen problem and possible policy measures.

As a reminder, in April and May, Japan spent a record 11.7 trillion yen ($72.4 billion) in the foreign exchange market, though this only temporarily strengthened the yen.