Yen keeps recovering after remarks by Japanese officials

The Japanese yen rose in Asian markets on Thursday, extending its gains for a second consecutive day against the US dollar. The rebound moved the yen further away from a two-week low, driven by renewed buying at lower levels and comments from Japanese officials regarding the currency’s performance in the foreign exchange market.

Expectations for a potential interest rate hike by the Bank of Japan in July have increased following last week’s strong economic data out of Tokyo. Markets now await further indicators on inflation, wages, and unemployment in the world’s third-largest economy.

The Price

The USD/JPY pair fell 0.4% on Thursday to ¥145.75, down from the day’s opening level of ¥146.30, after touching a session high of ¥146.32.

On Wednesday, the yen had settled up 0.3% against the dollar—its first gain in three days—recovering from the two-week low of ¥147.18.

Japanese Authorities Comment

Masatsugu Asakawa, Japan’s former top currency diplomat, told Reuters that Japan is unlikely to face US pressure to deliberately strengthen the yen, despite President Donald Trump’s criticisms of the country’s large trade surplus with the US.

Asakawa emphasized that the dollar’s status as a global reserve currency remains strong. However, it has become more vulnerable to selling pressure after Trump’s April 2 announcement of sweeping “reciprocal” tariffs.

In an interview late Wednesday, Asakawa said a weaker dollar could accelerate inflation in the United States—a risk he believes Treasury Secretary Scott Bessent is well aware of.

He added that, to his knowledge, there are no specific currency discussions between Bessent and Japan’s Finance Minister Katsunobu Kato in the context of ongoing trade talks.

Asakawa also noted that predicting the outcome of bilateral trade negotiations remains difficult, particularly as Trump has shown little interest in Japan’s efforts to secure exemptions on auto tariffs.

Interest Rate Outlook

Last week’s data from Tokyo showed household spending in Japan surged by 4.7% year-on-year in May—the fastest pace since August 2022. This sharply beat market expectations for a 1.3% increase, after a 0.1% decline in April.

Following the strong spending data, market pricing for a 25-basis-point rate hike by the Bank of Japan in July rose from 40% to 45%.

Investors are now looking to upcoming releases on inflation, wages, and unemployment to further calibrate their expectations for the July policy decision.