Yen declines after reports of interference by Japanese authorities, focus turns to Fed

On Tuesday, the yen retraced some of its substantial gains from Monday, attributed to potential intervention by Japanese authorities.

The Japanese currency declined by 0.40 percent to 157.00 against the dollar, moving away from its 34-year low of 160.245 recorded on Monday. Traders speculated that Tokyo intervened by purchasing yen, resulting in a remarkable rebound.

However, Japanese authorities have not confirmed any intervention in the currency market to bolster the yen. Nonetheless, markets remain vigilant for potential intervention ahead of the Federal Reserve’s monetary policy decision this week.

If it indeed occurred, official statements regarding the intervention will not be released until late May.

Despite the recent rebound, the yen remains lower than its level before the Bank of Japan’s monetary policy decision announcement last week. It also experienced its most significant monthly decline since January.

The timing of any potential increase in Japanese interest rates remains uncertain. Meanwhile, traders are scaling back their expectations of the Federal Reserve reducing interest rates this year, driven by stronger-than-expected US economic data and persistent inflation.

According to CME’s Fed Watch tool, markets anticipate a 44 percent probability of a US interest rate cut in September.

The dollar index climbed by 0.16 percent to 105.69 points against a basket of six major currencies ahead of the Federal Reserve meeting, following a 0.25 percent decline in the previous session.

Other major central banks, such as the European Central Bank and the Bank of England, may consider reducing interest rates in the near future, although recent developments have introduced uncertainties into the policy trajectory.