The Japanese yen continued to trade sideways after reaching the lows recorded during the last two years and could remain subdued.
FX traders could refrain from significant moves as they monitor signals regarding potential interventions by Japanese authorities to curb the yen’s weakness.
Hiroshi Watanabe, a former top currency diplomat, suggested that government action is unlikely unless the yen falls below 155 per dollar, which could leave some maneuvering room for traders.
The recent dip in the yen, followed by stabilization, occurred amidst speculation that the Bank of Japan would maintain an accommodative monetary policy despite a recent shift away from negative rates.
Market attention now turns to key economic data next week, particularly Japan’s consumer confidence index, which rose to 39.1 points in February, the highest since December 2021, indicating strengthened household sentiment. Continued improvement in consumer confidence could mitigate further downside risk for the yen.
However, the Japanese currency could remain under stress as interest rate differentials with its US counterpart remain elevated, fueling concerns of further declines in particular as US monetary policy expectations continue to change. Expectations of interest rate cuts in the US have subdued to a certain extent which could leave the yen under pressure.
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