Yen stabilizes amid speculation of Japanese intervention after dollar fall

(MENAFN) The Japanese yen steadied on Friday amidst speculation of intervention by Tokyo to bolster the currency, following a surprising drop in U.S. consumer prices that led to the largest decline in the dollar since May. Earlier in the week, the yen had been hovering close to its weakest level in 38 years before swiftly reversing course on Thursday, prompting speculation that authorities had intervened through purchasing operations to support its value.

The movement in the yen followed a U.S. consumer price inflation report showing a deceleration in price increases, reinforcing market expectations that the Federal Reserve could cut interest rates as early as September. The Bank of Japan’s daily operations data revealed that it bought between 3.37 trillion yen (USD21.18 billion) and 3.57 trillion yen (USD22 billion) of its own currency on Thursday, marking its first intervention in less than three months.

On Friday, the yen showed a slight decline as the dollar edged up by 0.1 percent to 159.04 yen. Conversely, the euro, which had dropped 3 percent against the yen on Thursday, rebounded by 0.3 percent to 173.165 yen. According to the CME FedWatch tool, traders now see a 93 percent probability of a rate cut by the Federal Reserve in September, up from 73 percent before the release of the consumer price data. The markets are pricing in a total reduction of 61 basis points in interest rates by the end of the year.

Meanwhile, the dollar index, which measures the dollar against a basket of six major currencies, held steady at 104.32, near its one-month low of 104.07 recorded on Thursday. The euro strengthened by 0.2 percent to USD1.0885, remaining just below its one-month high reached the previous day, while the British pound traded at USD1.296 after data indicated stronger-than-expected economic growth in May, potentially reducing prospects for an interest rate cut by the Bank of England in August.