Japanese Yen gains respite as officials caution against rapid exchange-rate moves

• 160.00 in Focus: Japanese Yen Strengthens as Intervention Warnings Pressure USD/JPY.
• The Yen gains some respite from a mild US Dollar retreat, but hawkish Fed expectations constrain its recovery.
• The pace of further BoJ rate increases is in question following cautious comments from policymaker Toichiro Asada.

USD/JPY is trading around 159.70, down 0.10% on the day. The pair edged lower on Thursday after touching 159.94, its strongest level in more than two months. Expectations of more aggressive Federal Reserve (Fed) rate increases had lifted the US Dollar (USD), taking USD/JPY close to 160.00 and renewing attention on the risk of Japanese intervention.

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

Yen Defence Signals Face Challenge From USD Strength

Recent official language, 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 caveat 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 argue 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 pressure on the Japanese Yen (JPY) eased on Thursday as the US Dollar (USD) retreated modestly. After touching 103.08, its highest reading since April 2025, the US Dollar Index (DXY) is trading near 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 is considered the likeliest 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 increases to return inflation to the 2% target.

Caution over further tightening 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” and the BoJ “must be cautious about the pace of increases.” Pointing to weak growth and consumption, Asada also said current price rises “aren’t necessarily fueled by demand”.

Weekly US jobless claims due later on Thursday, followed by Friday’s Producer Price Index (PPI), are the next focus for traders seeking indications of the Fed’s December decision.