• The Japanese Yen strengthens as USD/JPY retreats toward 161.60 after another failed attempt to break above 162.00.
• Expectations for further Bank of Japan rate hikes and intervention risks support the Japanese currency.
• A softer US Dollar, driven by easing expectations for additional Federal Reserve tightening, caps the pair's upside.

USD/JPY edges lower on Friday and trades around 161.60 at the time of writing after once again failing to sustain a move above the 162.00 mark. The pair is facing profit-taking as investors remain cautious over the risk of intervention by Japanese authorities to support the domestic currency.

The US Dollar (USD) is also losing some ground after markets slightly scaled back expectations that the Federal Reserve (Fed) will deliver at least two additional interest rate hikes this year. According to the CME FedWatch tool, those odds have declined from last week as easing energy prices have reduced inflation concerns.

At the same time, the Japanese Yen (JPY) continues to receive solid fundamental support. The Summary of Opinions from the Bank of Japan (BoJ) June meeting showed that several policymakers are increasingly concerned about inflation risks, with one board member arguing that the policy rate should be moved closer to the estimated neutral level of around 2% as soon as possible. Tokyo inflation data released this week also reinforced expectations for additional BoJ rate hikes later this year.

Market participants also remain alert to comments from Japanese officials. Chief Cabinet Secretary Minoru Kihara reiterated that authorities stand ready to respond if foreign exchange moves become excessive, while Finance Minister Satsuki Katayama discussed currency developments with US Treasury Secretary Scott Bessent.

Several banks believe the 162.00-163.00 area could now represent a new intervention zone. ING argues that markets increasingly view 162.00 as the new "line in the sand" for intervention, while MUFG believes intervention risks are already helping to limit further JPY weakness. Meanwhile, Commerzbank notes that Japan's inflation moving closer to the Bank of Japan's 2% target gives policymakers greater scope to continue normalizing monetary policy.