Yen edges higher on intervention warning, cooler US inflation

The Japanese yen edged higher against the US dollar on Thursday as Finance Minister Satsuki Katayama repeated her warning that Tokyo stands ready to act on currency moves, while softer-than-expected US inflation data dampened expectations of a Federal Reserve rate increase later this month.

Katayama Reiterates Intervention Stance

Katayama again said the government is prepared to "take appropriate action at any time, as needed" on foreign exchange, according to reports, maintaining the verbal posture she has adopted repeatedly since early 2026 as the yen has hovered near four-decade lows against the dollar. The USD/JPY pair traded around the 162 level on Thursday, pulling back modestly from this week's highs.tradingeconomics+3

Japan spent a record ¥11.73 trillion supporting the yen between late April and late May, according to official data, and the persistent weakness near 162 has kept markets on edge over the prospect of fresh intervention. Katayama has stressed that Tokyo is in close and continuous contact with Washington on foreign exchange issues.sahmcapital+2

Cooling US Inflation Reduces Rate Hike Odds

The yen's gains were bolstered by data showing US inflation cooling faster than expected. The Bureau of Labor Statistics reported Tuesday that the consumer price index fell 0.4% in June, its largest monthly drop since April 2020, bringing the annual rate down to 3.5% from 4.2% in May. Core CPI was flat on the month and rose 2.6% year-over-year.cnbc+2

Wednesday's producer price data reinforced the trend, with the PPI falling 0.3% in June — the largest decline in 14 months — driven by a 6.4% drop in energy prices. The data led traders to sharply reduce bets on a Fed rate increase at the July 28-29 meeting, with the probability of a hike falling to roughly 10%, down from about 35% before the CPI release, according to Reuters Thomson Reuters Corporation ↗ 1.21%. Market pricing now points to about a 60% chance of a rate increase at the September meeting.reuters+2

Outlook Remains Uncertain

The Fed currently holds its benchmark rate at 3.5%-3.75%, and officials are broadly expected to hold steady this month. While the inflation data provided relief, annual price increases remain well above the central bank's 2% target, leaving the door open to further tightening later in the year. For the yen, traders continue to watch for any shift from verbal warnings to actual intervention, with the currency trading near levels that triggered direct action in 2024.japantimes+3