Japanese Yen gains respite as officials caution against rapid currency moves

• Japanese Yen strengthens as intervention warnings pressure USD/JPY around 160.00.
• Hawkish Fed expectations constrain the Yen's rebound despite some respite from a modest US Dollar retreat.
• The pace of further BoJ rate increases faces uncertainty following cautious comments from policymaker Toichiro Asada.

Having reached 159.94, its highest level in more than two months, USD/JPY has edged lower on Thursday. Expectations of more aggressive Federal Reserve (Fed) rate increases had supported the US Dollar (USD), taking the pair close to 160.00 and renewing attention on the risk of Japanese intervention. The pair stands at around 159.70 at the time of writing, a decline of 0.10% on the day.

Recent currency movements have been too rapid, Japan’s top currency diplomat, Atsushi Mimura, said on Thursday, warning that “it’s still too early to forget what happened this summer.” After the Yen fell to almost 164 per US Dollar, its weakest level in about 40 years, Japan purchased a record ¥15.4 trillion worth of Yen over three days between 30 July and 3 August.

Japan prepares to support Yen as USD strength complicates intervention

Recent official comments, according to analysts at MUFG/BTMU, “sends a strong signal that Japan is prepared to intervene again to support the Yen,” which they believe “should help to limit further upside for USD/JPY beyond 160.00.” Their caution, however, is that “it will be even more difficult to reverse the upward trend for USD/JPY right now with the USD strengthening broadly on the back of expectations for faster Fed rate hikes.” They also suggest that “if the rising risk of further intervention helps to stabilize USD/JPY while the US Dollar continues to strengthen more broadly, it could see non-USD Yen crosses moving lower.”

Some of the pressure on the Japanese Yen (JPY) has nevertheless eased as the US Dollar (USD) retreats modestly on Thursday. Having touched 103.08, its strongest level since April 2025, the US Dollar Index (DXY) is trading close to 102.88. The index measures the Greenback against six major currencies.

A December Fed rate increase is now fully priced in by traders. A 25-basis-point (bps) rise remains the most likely outcome, although markets assign a small probability to a larger 50 bps increase. Expectations strengthened following this week’s higher-than-forecast US consumer inflation figures and calls by Fed officials for additional rate rises to return inflation to the 2% target.

A cautious message also came from Bank of Japan (BoJ) board member Toichiro Asada, who warned that “rate hikes may harm the economy, reduce core inflation.” With the policy rate within the neutral range, he said a “further hike could have greater effect on the economy”, adding that the BoJ “must be cautious about the pace of increases.” Citing subdued growth and consumption, Asada said current price rises “aren’t necessarily fueled by demand”.

For further indications of the Fed’s December decision, traders are looking ahead to weekly US jobless claims due later on Thursday, followed by Friday’s Producer Price Index (PPI).