Yen weaker in thin trading as traders remain alert to intervention risks

The Japanese yen weakened against the dollar on Friday as investors remained wary of possible interventions to support the currency, while the dollar rose slightly against the euro in thin trading volumes. The yen has remained in the background despite a rate hike by the Bank of Japan last week, reflecting concerns about the country’s expansionary fiscal policy. Japan’s government on Friday proposed record spending for next fiscal year while scaling back debt issuance, underscoring Prime Minister Sanae Takaichi’s challenge to stimulate the economy while keeping inflation above the central bank’s target. Data on Friday also showed core consumer inflation in the Japanese capital slowed in December due to moderating food cost pressures but remained above the central bank’s 2% target, strengthening the case for further rate hikes. Bank of Japan Governor Kazuo Ueda said Thursday that the country’s underlying inflation is gradually accelerating and steadily approaching the central bank’s 2% target. In doing so, he reiterates the central bank’s willingness to continue raising interest rates. However, the yen has come off its recent lows as Japanese officials warn of possible interventions. Japan has a free hand in dealing with excessive yen movements, Finance Minister Satsuki Katayama said on Tuesday. In doing so, he issued the strongest warning yet about Tokyo’s willingness to intervene in the currency market to halt sharp declines in the currency.

Against the ‍yen, the dollar last rose 0.48% that day at 156.54. Last Friday it reached 157.77. The dollar index, which measures the greenback against a basket of currencies including the yen and euro, rose 0.01% to 98.04, while the euro fell 0.04% to $1.1772.

Sterling fell 0.22% to $1.3493.

The dollar has weakened this year as investors price in further interest rate cuts by the Federal Reserve, while other central banks are expected to keep rates steady.

Fed officials are balancing a weakening labor market with concerns about inflation remaining above the central bank’s annual target of 2%.

Fed funds futures traders are pricing in two to three 25 basis point cuts next year, with the first possible in March. In cryptocurrencies, Bitcoin fell 0.58% to $87,340.