Japanese Yen holds losses below 157.00 US Dollar with intervention fears growing

The Japanese Yen (JPY) started the week in a bearish trend, continuing its decline against the US Dollar (USD) with reduced trading volumes during Japan's bank holidays. The USD/JPY pair remained above 157.00, approximately 3% higher than the lowest levels seen this month, reigniting speculation about foreign exchange intervention.

The pair experienced a significant rebound last week after the US Federal Reserve (Fed) raised its benchmark interest rate for the first time in three years. Chairman Kevin Warsh delivered an unexpectedly hawkish message, leading investors to increase hopes of additional rate hikes in the coming months. Futures markets now estimate a 53% probability of a quarter-point rate hike in October and a 90% likelihood of at least one rate hike before the year's end, according to the FedWatch Tool.

The Bank of Japan (BoJ) increased its rates by 25 basis points to 1.25% on Friday, with Governor Ueda indicating further rate hikes to counter economic growth and consumer price inflation. However, the two dissenting voices within the committee have raised concerns about the extent of the central bank's tightening plans. ING analysts suggest that a reported BoJ rate check on Friday pushed USD/JPY below 157.0, implying that Japanese authorities may prioritize the pace of moves over defending a specific level.

Despite this, the bank notes that the Fed has become more hawkish than the BoJ this month, leaving room for further USD/JPY gains. The trading week is relatively quiet, with only a speech by Chicago Fed President Austan Goolsbee and Japan's Jibun Bank PMIs on Thursday providing potential insights into the US and Japanese economies.