Yen Stabilizes After Intervention Slide as Australian Dollar Hits Eight-Week High

The Japanese yen steadied against the U.S. dollar on Tuesday after suffering a sharp decline in the previous session, as the impact of the recent joint U.S.-Japan currency intervention continued to fade. Meanwhile, the Australian dollar traded near an eight-week high ahead of the Reserve Bank of Australia’s latest policy decision.

The yen strengthened to around 158.93 per dollar during Asian trading but remained well below last week’s three-month high of 155.20. That rally followed a rare coordinated U.S.-Japan yen-buying intervention in late July after USD/JPY climbed to a 40-year high of 163.99.

Since then, the yen has surrendered nearly half of its intervention-driven gains, fueling expectations that Japanese and U.S. authorities could step into the foreign exchange market again if weakness accelerates.

Marc Chandler, chief market strategist at Bannockburn Capital Markets, said traders appeared to be testing policymakers’ determination. Trading volumes were also lighter because Japanese financial markets were closed for a holiday.

Currency speculators have significantly reduced bearish yen positions. U.S. regulatory data showed net yen shorts declined by $8.865 billion to $3.604 billion in the week ending August 4, marking the largest reduction in more than 12 years. However, analysts believe traders could gradually rebuild short positions, particularly if USD/JPY approaches the 160 level again.

Markets are pricing in slightly more than a 50% probability of a Bank of Japan interest rate hike. The BOJ also faces political pressure as it balances monetary tightening with concerns surrounding Japan’s bond market.

Elsewhere, the Australian dollar traded around $0.7057 ahead of the RBA rate decision. The central bank is widely expected to leave interest rates unchanged while maintaining a cautious stance on persistent inflation risks.

The U.S. dollar was broadly stable against major currencies as oil prices remained near one-week highs amid uncertainty surrounding efforts to end the U.S.-Iran conflict. The euro traded near $1.1544, while sterling stood around $1.3509.

Investors will next focus on Wednesday’s U.S. CPI inflation report, followed by producer prices on Thursday and retail sales on Friday for further clues about inflation and the Federal Reserve’s interest rate outlook.