Currency Volatility: Tokyo's Possible Intervention to Stabilize Yen Amid U.S. Inflation Report

The yen experienced volatility following a surprising drop in U.S. consumer prices, leading to speculation about Tokyo's potential intervention to uplift the currency from a 38-year low. There was no confirmation, but market interventions were reported. Analysts predict ongoing currency market fluctuations influenced by global inflation trends and interest rate expectations.

The yen experienced significant swings on Friday following a surprising decline in U.S. consumer prices, fueling speculation that Tokyo may have intervened to support the currency from its 38-year low. Initially, the yen spiked nearly 3% before settling 0.27% lower at 159.27 per dollar.

Masato Kanda, Tokyo's top currency diplomat, hinted at necessary actions in the foreign exchange market but remained tight-lipped on any intervention. Investor focus is now on upcoming data that might confirm Japan's intervention. Reports from Asahi and Nikkei suggested various authorities' activities had unnerved the market further.

April and May saw Tokyo deploying around 9.8 trillion yen ($61.55 billion) in support, but the yen recently hit a low of 161.96 per dollar. The vast rate differential between U.S. and Japanese reserves propels the yen's further depreciation. Meanwhile, U.S. inflation data suggests potential September rate cuts by the Fed, tempering the dollar. Attention shifts towards future economic indicators and geopolitical developments.

(With inputs from agencies.)