Yen Rebound Dollar Loses Momentum
The Japanese yen rebounded from its weakest level in approximately 18 months on Wednesday, after several Tokyo officials renewed warnings of potential intervention to stem the currency's weakening. Meanwhile, the US dollar weakened slightly against the euro as market participants continued to assess the direction of the Federal Reserve's interest rate policy.
Previously, the yen was pressured by concerns that Japan would enter a phase of looser fiscal and monetary policies. Speculation that Prime Minister Sanae Takaichi could call a snap election added to the pressure, as such a move was seen as potentially delaying parliamentary approval of a law allowing for the issuance of deficit-covering bonds.
Japanese Finance Minister Satsuki Katayama asserted that the government was ready to take "appropriate action" against excessive foreign exchange fluctuations—without ruling out any options. This warning prompted the market to reconsider the risks of intervention, leading to a brief strengthening of the yen despite the remaining fragile fundamental sentiment.
Some analysts believe the yen's weakening has become "excessive." Technically, a peak signal emerged after the yen reached an extreme level, but fundamentally, room for weakness remains if USD/JPY manages to break through 160—noting that the threat of intervention makes the market two-sided (with the potential for a rapid rebound at any time).
On Wednesday, the yen strengthened by around 0.4% to 158.43 per dollar, after briefly touching 159.45 (its weakest since July 2024). The dollar index moved slightly lower.
In the US, the dollar is still struggling to continue its late-December rally as markets expect the Fed to hold interest rates for the next few months. The dollar remains cushioned from geopolitical risks, but is overshadowed by the Fed's independence issue related to the Justice Department's investigation into Fed Chairman Jerome Powell. However, concerns about the Fed's independence have eased in recent days, amid growing political resistance within the Republican Party and support from central bank officials.
Market participants are also awaiting a Supreme Court ruling on the legality of Trump's emergency tariffs—which could be issued as early as Wednesday—as the outcome could influence the direction of US trade policy. Meanwhile, the latest US data showed producer prices (PPI) rose slightly in November and retail sales increased stronger than expected, but the impact on the dollar is considered limited.
Source: Newsmaker.id
