Japanese Yen softens despite intervention fears

The USD/JPY pair posts modest gains around 161.80 during the Asian trading hours on Monday, bolstered by uncertainty surrounding US-Iran talks. Nonetheless, the potential upside might be limited amid fears of intervention from Japanese authorities. Traders will keep an eye on the US June Nonfarm Payrolls (NFP) report, which is due later on Thursday. 

A US President Donald Trump administration official said on Monday that the US and Iran will “stand down for now” after both sides traded fire near the Strait of Hormuz. The US official added that vessels can move freely in the strait, but the interim agreement has not been reflected in the waterway. Two countries plan to meet on Tuesday in Qatar, Axios reported. 

Markets are on high for currency intervention from Japanese officials, which might support the Japanese Yen (JPY) and act as a headwind for the pair. Japan’s Chief Cabinet Secretary Minoru Kihara said last week that officials will take appropriate action against the foreign exchange moves if needed.

The Bank of Japan (BoJ) hawkish board member Naoki Tamura stated last week that the central bank should raise interest rates once every few months and stand ready to speed up the pace of hikes, highlighting the BoJ’s focus on inflationary risks from the Middle East conflict.

The Japanese central bank is scheduled to hold its next monetary policy meeting on July 30–31, when it is widely expected to hold rates steady but will also update quarterly forecasts that markets will parse for signals on the timing of the next hike. A Reuters poll taken before the June hike showed most economists forecasting a rate increase to 1.25% in the fourth quarter (Q4).