Yen Slips as Dollar Steadies, US PCE in Focus

USD/JPY traded near 159.18 on Monday, edging slightly higher during the session. The dollar found temporary support after last week's sharp volatility, providing a floor for the exchange rate. Meanwhile, the US is preparing to expand secondary sanctions on Iran, with rising geopolitical risks lending some support to the dollar's safe-haven demand, though it also drew some safe-haven buying for the yen, limiting the pair's one-sided advance.

**PCE Data Becomes Key Short-Term Variable**

Market focus is shifting to the upcoming US Personal Consumption Expenditures (PCE) price index. As the Federal Reserve's most closely watched inflation gauge, the data will directly influence expectations for the interest rate path. A higher-than-expected reading could reinforce the Fed's stance of keeping rates elevated for longer, boosting the dollar and further pressuring the yen; conversely, signs of cooling inflation could weigh on the dollar, offering the yen some breathing room. The latest PCE reading, released previously, largely matched market expectations and had briefly triggered a dollar pullback.

**Yen Still Near Multi-Year Lows**

Although the yen has recovered somewhat from earlier extreme levels, it remains broadly hovering near multi-decade lows. The fundamental driver of yen weakness lies in the massive interest rate differential between Japan and the US, along with market concerns over Japan's heavy debt burden. Japan's total debt has exceeded twice its economic output, ranking among the highest in major developed economies. Market consensus expects the Bank of Japan to remain cautious on rate hikes, with delayed policy normalization expectations continuing to pressure the yen.

**Intervention Risk Limits Downside**

Japanese authorities' verbal intervention and potential actual action provide some support for the yen. Japan's Finance Minister recently stated that authorities will continue to closely monitor market conditions and maintain close communication with the US Treasury, ready to act without hesitation on further joint intervention if necessary. US officials have expressed similar stances. This policy coordination posture keeps markets wary of directly shorting the yen, though analysts note that without fundamental changes in underlying factors, the effectiveness of intervention in reversing yen weakness remains uncertain.