Yen weakens ahead of BOJ policy decision

The dollar gained 0.8% to 160.690 against the yen in early trades, after declining 2.4% in its biggest single-day drop since January 2023 in the previous session

The yen came under renewed pressure on Friday as markets tested Tokyo’s resolve in the wake of a coordinated intervention to prop up the fragile currency ahead of an eagerly anticipated policy decision from the Bank of ‌Japan.

The dollar gained 0.8% to 160.690 against the yen in early trades, after declining 2.4% in its biggest single-day drop since January 2023 in the previous session.

Japan conducted yen-buying, dollar-selling market intervention in the New York session overnight, a market source told Reuters, pulling the sagging currency from four-decade lows.

The country’s top foreign exchange diplomat said on Friday Tokyo was ‌receiving support from the United States that “goes beyond psychological support.”

Coordination is a strong positive for the yen and will definitely make speculators think twice, said Chris ‌Weston, head of research at Pepperstone. If you’re holding a leveraged position, 450-500 pip rip to the downside against you, it’s going to hurt.

Speculators have amassed large bearish bets on the yen, with weekly data from a U.S. regulator showing net short positions on the currency worth $11.65 billion, near the highest in two years.

All eyes are now on the BOJ, which is widely expected to keep short-term ⁠interest rates steady at 1%, having just hiked in June, while delivering a hawkish signal as price pressures mount. The slow pace of rate hikes has been blamed for pushing the yen to ​a 40-year low.

I think the market will push ⁠it (dollar/yen) back higher again and we’ve already seen signs of it this morning, said Nick Twidale, chief market strategist at ATFX Global in Sydney. But for me it now brings into question, could we see a surprise ⁠hike ​from the BOJ today. I think it’s very unlikely, but given the amount they have spent on intervention, could they look to follow it up with fundamentals.

The Aussie and Kiwi dollar ‌dropped nearly 0.1%, last ‌at $0.7030 and $0.5871, respectively.