Given the significant interest rate gap between Japan and the United States, the yen remains a favored currency for carry trades.
Japan is suspected to have carried out repeated interventions until USD/JPY hit a three-week low at 151.85 in Friday's trading. However, the Ninja duo started climbing again this week, reaching a three-day high at 154.65 in today's Asia session (May 7).
Japanese officials persistently avoid answering questions about whether their country has been selling the dollar to bolster the yen's exchange rate. However, Bank of Japan (BoJ) data indicates several instances of currency intervention totaling around 9 trillion yen.
Masato Kanda, the Japanese Currency Diplomat, reiterated this morning that the government "will continue to take the same firm stance" on the yen's volatile movements. At the same time, he acknowledged that the government would refrain from intervening in orderly market conditions.
Kanda's statement failed to dissuade yen sellers. Reuters reported that some analysts saw it as a sign that the risk of Japanese intervention had decreased.
Due to the considerable interest rate differential between Japan and the United States, the yen remains a preferred currency for "selling" in carry trades. The Federal Reserve kept interest rates at 5.25%-5.50% in last week's FOMC meeting, while the BoJ remains committed to maintaining near-zero interest rates.
DBS analysts noted that the yen remains the most undervalued among G10 currencies despite its recent strengthening due to Japan's intervention. Meanwhile, the US dollar remains significantly overvalued.
The yen also shows bearish indications against various other major currencies. EUR/JPY briefly touched a low of 164.00 last week but is now hovering around 165.90. GBP/JPY briefly fell to 191.35 but posted a high of 194.10 this morning.