The yen weakened past the key ¥160-per-dollar level as it extends a slide that’s erased more than half of its intervention-fueled gains.
The Japanese currency slipped as much as 0.5% to ¥160.16 versus the greenback after the dollar got a boost from Federal Reserve Chairman Kevin Warsh’s vow to hit the central bank’s inflation target. Traders now are carefully watching yen levels for signs of when authorities might move to protect the currency.
The yen has been under pressure since failing to push through ¥155 earlier this month in the wake of joint action on July 31, when the U.S. and Japan conducted their first coordinated yen-buying intervention since 1998. The latest bout of yen weakness emerges even after U.S. Treasury Secretary Scott Bessent made a fresh attempt to rein in long-term U.S. borrowing costs from multiyear highs.
“With the yen touching the psychologically relevant level of 160 per U.S. dollar, intervention expectations will inevitably increase,” said Alex Cohen, a foreign-exchange strategist at Bank of America. “Though given that the move is broadly dollar and U.S. rates driven in nature, authorities are likely to be a bit more patient here.”
The greenback recovered as Warsh warned that inflation isn’t slowing meaningfully, boosting bets on interest-rate hikes. Investors are concerned over the wide rate gap between Japan and other economies, the nation’s heavy debt burden and the impact of recent gains in oil prices, which have reverberated globally.
“160s is no longer a valuation level. It’s becoming a policy level. Washington and Tokyo have effectively put a political line in the sand in the mid-160s,” said Masahiko Loo, senior fixed-income strategist at State Street Investment Management. “We would not rule out another round of intervention before a potential Bank of Japan hike, as early as September.”
Brendan Fagan, a Macro Strategist at Bloomberg, said that the yen’s move Friday “shows intervention and its fleeting impact is no match for the ongoing path of global interest rates.”
“USD/JPY has only retraced roughly half of the record intervention drop, so this market has more to do before the pair enters territory that Japanese authorities may deem uncomfortable,” he added.
The Bank of Japan is meeting next month to decide on rates with market pricing in about 80% chance of a hike. The rate gap with the U.S. remains vast while traders also expecting a rate increase by the Federal Reserve this year.
Geoffrey Yu, a senior strategist at BNY, said he expects Japanese authorities to hold off on interventions for now as the rates meeting is approaching.
“Tokyo must deliver if they want to stabilize foreign-currency markets,” he said.
Prime Minister Sanae Takaichi’s government is said to be supportive of a near-term BOJ hike given the yen weakness. The yen had been near a four-decade low of around ¥164 per dollar before a bout of intervention in the last days of July that saw the U.S. join Japan in defense of the currency. Back in the summer of 2024, authorities also intervened to support the yen when it crossed the ¥160-per-dollar level.
Hedge funds have slashed by more than half their bearish bets against the yen since the coordinated intervention, while building them slightly up in the week through Aug. 18, Commodity Futures Trading Commission reported. Investors are starting to return to carry trades funded by the currency, according to market watchers.
