Yen Holds Steady as Markets Watch US-Iran Talks

The Japanese yen strengthened to around 158 per dollar on Friday, recovering from two-week lows and snapping a five-session losing streak after Finance Minister Satsuki Katayama said President Donald Trump had expressed concerns about the yen during a meeting with Prime Minister Sanae Takaichi earlier this week. Markets were already alert to the possibility of intervention as the currency approached the key 160 level, which could test Tokyo’s tolerance for further yen weakness. Katayama reiterated that she would continue coordinating with her US counterpart Scott Bessent after Japan and the US carried out their first coordinated yen-buying intervention since 1998 in late July. The yen has faced renewed pressure as expectations for additional Federal Reserve rate hikes threaten to keep the US-Japan interest-rate differential wide. Uncertainty over the pace at which the Bank of Japan can continue tightening policy has also weighed on the currency.

The Japanese yen traded around 158.5 per dollar on Friday, staying near two-week lows and close to the key 160 level that could test Tokyo’s tolerance for further yen weakness. The currency also remained under pressure from a stronger dollar and surging Treasury yields as expectations grew that the Federal Reserve will tighten policy further to curb inflation. Moreover, the yen weakened as the Bank of Japan’s rate hike last week was viewed as insufficiently hawkish, with two officials dissenting from the decision. Meanwhile, former board member Makoto Sakurai said the central bank is expected to raise interest rates roughly once every three months, potentially lifting them to 2% by around June next year as it seeks to tackle mounting inflationary pressures.

The Japanese yen depreciated past 158 per dollar on Thursday, hovering at three-week lows as the dollar strengthened following robust US private-sector activity data that reinforced expectations for further Federal Reserve rate hikes. Rising Treasury yields and elevated oil prices also highlighted mounting inflation risks, adding further pressure on the yen. Meanwhile, traders remained alert for possible intervention as the currency approaches the closely watched 160 level, with reports indicating that the Bank of Japan conducted a rate check with market participants last Friday. The BOJ's rate hike last week was seen as insufficiently hawkish, with two officials dissenting from the decision,. Elsewhere, S&P Global data showed Japan’s manufacturing growth slowed to a seven-month low in September, amid softer increases in output and new orders.