Yen's Post-Intervention Stabilization Tests Japan's Resolve

The yen has stabilized near 159 per dollar after Japan's currency intervention in late July. Traders are probing how far officials will let the currency slide, keeping a close eye on interest rates as a key driver of the exchange rate.

Japan and the US stepped into foreign-exchange markets in late July to buy yen after it hit a decades-low near 164 per dollar. Since then, the currency has given back roughly half of that move and was trading at 158.93, keeping 160 as an unofficial line in the sand.

Traders see a bit better than even odds of a Bank of Japan rate hike, but the path is messy due to pressure to avoid big jumps in government bond yields. Banks like ING warn that the pair could stay choppy and revisit 160 even if Japan tightens later and the Federal Reserve stands pat.