The yen was 0.1% stronger against the U.S. dollar at 161.205 yen, steadying after dropping to a two-year low on Thursday, though holidays in the U.S. and much of Asia kept liquidity thin.
Most other currencies were little changed as shipping in the Strait of Hormuz returned to normal after the signing of the U.S.-Iran peace deal earlier this week, though question marks remain over whether the truce will hold.
But the Japanese currency has found little relief even after the Ministry of Finance’s dollar-selling intervention earlier this year and the Bank of Japan hiked interest rates to a 31-year high last week. Concerns around the spending plans of Japanese Prime Minister Sanae Takaichi have undermined investor confidence and prompted speculation that more intervention could follow.
“Our view is that Japan’s Ministry of Finance will likely defend the 161.95 level the first couple of times it’s tested, deploying similar firepower to what we saw in April and May – around ¥11.7 trillion,” said Tony Sycamore, market analyst at IG in Sydney.
“That would mean they would have used roughly 11-12% of their total reserves in a relatively short period, with little noticeable impact,” he added. “At that stage, they would need to become far more selective with future interventions to preserve flexibility and credibility, keeping plenty of ammunition in reserve.”
Japan’s annual core inflation stayed below the central bank’s 2% target for a fourth straight month in May, data showed on Friday, as fuel subsidies offset rising raw material costs from the Middle East conflict. “While the government’s fuel price caps have so far kept a lid on consumer prices, we expect the pass-through of higher energy costs to utilities charges and other goods and services to lift inflation to around 3.5% by early-2027,” analysts from Capital Economics wrote in a research note.
Minutes from the central bank’s meeting in April released on Friday showed some board members called for raising interest rates more swiftly if the Middle East conflict is prolonged, to avoid underlying inflation from overshooting. Bank of Japan Deputy Governor Ryozo Himino also said on Friday the central bank will continue to raise interest rates with an eye on the risk that underlying inflation overshoots its 2% target.
Most other currencies were little changed in Asian trading. The U.S. dollar index, which measures the greenback’s strength against a basket of six currencies, held at 100.81 after climbing 0.5% to hit a one-year high on Thursday.
The British pound was flat at $1.3205 after the Bank of England kept interest rates on hold at 3.75% on Thursday, judging it would be premature to raise rates now given uncertainty about the strength of increased inflation pressures.
Traders are awaiting the results of a by-election contested by Greater Manchester mayor Andy Burnham, who, if he wins, would likely challenge Prime Minister Keir Starmer for the leadership of the ruling Labour Party.
The euro was flat at $1.1459.
The Australian dollar slipped 0.1% to $0.7011, while its kiwi counterpart held steady, fetching $0.5756.
Bitcoin was down 0.2% at $62,868.18, while ether was unchanged at $1,708.98.
