The yen recovered slightly from its weakest level in almost four decades on Wednesday, as traders weighed the possibility of intervention from Tokyo, alongside expectations for quicker rate hikes by the Bank of Japan.
Pessimism toward the currency JPY=EBS has deepened as investors adjust to a shifting policy backdrop under Japanese Prime Minister Sanae Takaichi, whose administration has struggled to shake off perceptions that it may pressure the BOJ to delay further rate hikes. Higher rates typically support a currency.
After lingering around the previous day's 40-year low of 163.24 to the dollar, the yen got a sudden boost on Wednesday after Bloomberg News reported BOJ officials are open to raising rates at a faster pace than the consensus among economists.
The yen was last up 0.09% against a slightly weaker dollar, at 163.03.
Japan's Finance Minister Satsuki Katayama has said authorities would take decisive action if needed to curb excessive currency weakness. Tokyo had intervened in April and May, when the yen weakened beyond the 160-per-dollar level.
Those efforts, however, have done little to reverse the yen's broader trajectory, which analysts say is being driven by broad-based dollar strength and the BOJ's still-low interest rates.
"The record shows intervention buys time, not a trend reversal," Fabien Yip, market analyst at IG, said.
"Absent a genuine shift in BOJ policy, intervention looks set to keep functioning as a circuit-breaker rather than a cure."
Concerns about political influence over monetary policy intensified after the government, in a final economic blueprint, retained language urging the BOJ to align its policy with that of the government.
"For the first time in years, we didn't meet a single yen bull during our mid-year investor meetings," BofA Global strategists wrote earlier this month.
The bearishness towards the yen reflects wider unease as uncertainty over inflation, fanned by the Middle East conflict, has pushed businesses to step up protection against foreign-exchange risk.
"You're seeing a radical transformation in Japan, driven by the repricing of the Japanese yen," said Patrick Gauthier, CEO of FX payments firm Convera.
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