Yen Rebounds on Verbal Intervention, US-Japan Security Pact

Core Viewpoint - The yen has rebounded after verbal intervention from Japanese officials, while US and Japanese leaders have committed to enhancing security ties and defense funding [1][2]. Currency Performance - The yen rose by as much as 0.7% against the dollar, marking its first day of gains in eight, although it remains near its weakest level since February and is the worst performing currency among the Group-of-10 this month, having declined approximately 3% against the dollar [1]. Government Response - Japan's Minister for Growth Strategy, Minoru Kiuchi, stated that authorities will continue to monitor the effects of yen weakness on the economy [2]. - US Treasury Secretary Scott Bessent emphasized the importance of sound monetary policy in mitigating excessive currency fluctuations during discussions with Japan's Finance Minister Satsuki Katayama [3]. Market Sentiment - Derek Halpenny from MUFG Bank Ltd. noted that the US Treasury's statement suggests that the current monetary policy of the Bank of Japan may no longer be justified, indicating a potential decrease in appetite for selling the yen at current USD/JPY levels [4]. - There is an expectation of no change in interest rates from the Bank of Japan in the upcoming meeting, although pressure for a hike is increasing due to high inflation and ongoing yen weakness [4]. Broader Economic Context - Attention is shifting to the Federal Reserve's upcoming meeting, with traders anticipating a quarter-point rate cut. Additionally, Amazon's announcement of cutting approximately 14,000 jobs raises concerns regarding the US labor market's health [5]. - The yen's recent performance is attributed to mild verbal intervention from Japanese authorities, with market focus heightened due to a lack of US data amid a government shutdown [6].