Yen Weakens Amid Thin Trading as Markets Eye Potential Intervention Risk
By Karen Brettell | December 26, 2025
NEW YORK — The Japanese yen softened against the U.S. dollar on Friday, continuing to face pressure despite recent policy measures aimed at supporting the currency. Market participants remained cautious amid concerns that Japanese authorities may intervene in foreign exchange markets to stabilize the yen, especially in an environment of relatively thin trading volumes typical of the holiday season.
Yen Erodes Despite Bank of Japan Rate Hike
Last week, the Bank of Japan (BoJ) raised interest rates—a move that typically strengthens a nation’s currency—but the yen continued to weaken against the greenback. The subdued response reflects ongoing investor unease over Japan’s expansive fiscal policies, which could overshadow monetary tightening efforts.
On Friday, Japan’s government unveiled a record budget for the upcoming fiscal year, signaling an ambitious spending plan aimed at boosting economic growth. At the same time, officials proposed curbing debt issuance, highlighting the delicate balancing act Prime Minister Sanae Takaichi faces as she strives to stimulate the economy while managing inflation pressures.
Inflation Dynamics and Monetary Policy Outlook
Data released Friday also revealed that core consumer inflation in Tokyo slowed in December, predominantly due to easing food price pressures. However, inflation remained above the BoJ’s 2% target, reinforcing arguments for continued monetary tightening.
BoJ Governor Kazuo Ueda reiterated on Thursday that underlying inflation is “accelerating gradually” and moving steadily toward the central bank’s target. He emphasized the BoJ’s preparedness to continue raising interest rates as necessary to anchor inflation expectations.
Intervention Risk Keeps Traders on Edge
After the yen slid to multi-year lows earlier, Japanese officials intensified warnings about potential currency market intervention. Finance Minister Satsuki Katayama stated unequivocally that Tokyo maintains “a free hand” to act against excessive yen moves, marking the firmest indication yet of the government’s readiness to step in and arrest sharp declines.
Despite these warnings, the yen traded weaker on Friday, with the dollar rising roughly 0.48% against the yen to 156.54 per dollar. The yen had touched 157.77 against the greenback last Friday.
Dollar Index and Other Currency Movements
The U.S. dollar edged up slightly against a basket of major currencies, with the dollar index rising 0.01% to 98.04. The euro edged down 0.04% to $1.1772, while sterling slipped 0.22% to $1.3493. Broadly, the greenback has lost momentum this year as traders increasingly price in expectations of Federal Reserve rate cuts, contrasting with the stance of other central banks that are likely to maintain steady rates. Fed officials remain cautious, weighing a cooling labor market against persistent inflation pressures that remain above their 2% target.
Futures markets currently anticipate between two and three quarter-percentage-point rate cuts by the Fed next year, with the first reduction possibly coming as early as March.
Cryptocurrency Update
In the digital assets space, Bitcoin saw a slight decline, dropping 0.58% to $87,340 amid a generally subdued market environment.
Reporting by Karen Brettell; Editing by Louise Heavens and Alistair Bell.
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