Investing.com– The Japanese yen steadied near a 38-year low on Thursday, as the currency’s recent slide and low liquidity during a U.S. holiday sparked fresh speculation about government intervention.

The yen pair, which measures the number of yen needed to buy one dollar, was down 0.1% at 161.50 by 8:04 p.m. ET (00:04 GMT). The pair rose to 161.99 on Wednesday before falling on some dollar weakness.

However, the exchange rate remained close to its highest level since 1986 as signs of weakness in the Japanese economy and falling expectations that the Bank of Japan will tighten monetary policy further caused investors to largely shy away from the yen.

Intervention in the spotlight amid constant warnings from authorities

The USDJPY pair was trading well above 160 – a level that last prompted Japanese authorities to intervene in May.

Government officials have maintained verbal warnings of potential market intervention to stem the yen’s decline. They have not said at what level or to what extent they would intervene.

Traders have speculated that low liquidity over the July 4 holiday could prompt government intervention, given that lower trading volumes would reduce the cost of defending the currency.

The last government intervention came in early May, during Japan’s stock market holiday, when trading volume in currency markets was low.

Still, the intervention is expected to only temporarily halt the yen’s decline. High interest rates in the US and the BOJ’s gradual tightening of monetary policy are the two biggest factors behind the yen’s decline and are expected to continue to weigh on the currency in the near future.

Recent signs of weakness in the Japanese economy — after first-quarter gross domestic product data was sharply downgraded — have raised questions about how much leeway the BOJ has to tighten policy. Japanese inflation has also become sluggish in recent months.