The Japanese yen has surged to its highest level in nearly four weeks against the US dollar, prompting speculation that Japanese authorities may have intervened in the market for a second day.
The rally in the yen, which has been languishing at 38-year lows, began on Thursday after data showed US consumer prices eased in June, increasing the odds of a Federal Reserve rate cut in September. The move was amplified on Friday following moderate US producer price increases.
Experts believe the recent yen gains could be attributed to intervention by the Bank of Japan (BOJ), with some suggesting it may have spent billions of yen buying the currency. While the BOJ has not confirmed or denied intervention, daily operations data hints at significant yen purchases on Thursday.
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The dollar’s weakness is linked to expectations of a Fed rate cut, which would reduce the profitability of the “carry trade,” a strategy where investors borrow yen at low rates to invest in US dollar assets. The BOJ’s potential intervention may be aimed at buying time before the Fed’s expected rate cut.
Traders are now pricing in a 94% chance of the Fed cutting rates in September, compared to 73% before the CPI reading. The dollar index has fallen, while the euro and sterling have strengthened against the US dollar.
The yen’s surge raises questions about the future direction of the currency, with its trajectory dependent on the timing of the Fed’s rate cut and the BOJ’s strategy in managing its currency.