Dollar touches 160 yen as Treasury yields rise and intervention looms
Key Facts
The yen fell to 160.03 per dollar overnight, breaking through the 160 threshold for the first time since early September, before trading at 159.875 in a Reuters report on Friday, November 13, near its weakest levels since that month. The move came as the U.S. two-year Treasury yield rose 34 basis points over the previous two sessions, its biggest two-day increase in three and a half years. According to Reuters, the jump reflected traders’ bets on the possibility of a larger-than-usual U.S. rate hike next month, alongside President Donald Trump’s remarks that the United States did not need a deal with Iran. Traders priced in a 14.5% probability of a large hike next month, up from 0% the previous week. Renewed pressure on the Japanese currency kept the risk of official intervention in the foreign exchange market in focus, with the dollar nearing the level that prompted previous government action.
Japanese Finance Minister Satsuki Katayama said on Friday that the government would respond appropriately to currency-market volatility, after the yen touched 160 per dollar on Thursday, November 12. The statement comes as the government faces political and economic pressure from the weak currency, which raises the cost of fuel and imported goods and weighs on households already struggling with rising prices, Reuters reported. This adds to the challenge for the Bank of Japan, as a weaker yen erodes purchasing power and adds to the case for continued monetary tightening and a narrower interest-rate gap. The bank aims to keep its overnight interest rate near 1.25%, while the federal funds target range stood at 3.75% to 4.00% in the latest Federal Reserve data published on October 29. The difference in interest-rate levels between the two countries makes moves in U.S. yields a factor influencing the yen’s path, while the market watches whether Tokyo’s warnings will be followed by action.
The 160 threshold brings Japan’s previous interventions to support its currency back into focus. The government spent 15.4 trillion yen on interventions in July and August, after the yen fell to 163.99 per dollar in late July, according to a Reuters report. But a record published by the Federal Reserve Bank of New York showed that the U.S. side sold euros and bought yen worth about 497 million dollars during the July intervention, far below Japan’s total. Tohru Sasaki, chief strategist at Fukuoka Financial Group and a former Bank of Japan official, said the published figures weaken the view that coordinated intervention would be especially powerful, adding: "People were worried that coordinated intervention might be very powerful, but this shows that it is not." The comparison highlights the limits of the U.S. role in the previous move, as Tokyo again faces a test of how effectively the threat of intervention can curb the yen’s decline.
In the United States, attention is turning to the October Producer Price Index, scheduled for release on November 13 at 08:30 a.m. Eastern Time. The release follows a 1.3% rise in the Producer Price Index for final demand in September, after increases of 0.5% in August and 0.2% in July; the September reading was the largest since March 2022. The data could take on greater significance amid market bets on a larger U.S. tightening move next month, after the priced-in probability rose from 0% to 14.5%. In Japan, the Bank of Japan is scheduled to hold its next monetary policy meeting on December 17 and 18, with current guidance pointing to keeping the overnight interest rate near 1.25%. These dates put U.S. price data and the next Japanese bank decision among the milestones to watch for the path of interest rates and the yen.