Yen Weakens as Dollar, Treasury Yields Weigh

The Japanese yen weakened past 158 per dollar on Thursday, reversing recent gains as the dollar and Treasury yields continued to rise amid expectations that the Federal Reserve may need to raise interest rates further to contain energy-driven inflation. The Japanese currency also remained under pressure from wide US-Japan interest-rate differentials, as expectations for further Fed tightening continued to outweigh the Bank of Japan’s rate hikes. However, softer-than-expected US PCE inflation data prompted traders to reduce bets on a Fed rate hike in October. In Japan, a summary of opinions from the BOJ’s September meeting showed that policymakers saw a need to accelerate the pace of rate hikes or bring them closer to the central bank’s target in the near term. Meanwhile, traders remain alert to the possibility of currency intervention as Japanese authorities have stepped up verbal warnings in recent sessions.

The Japanese yen strengthened past 157 per dollar on Wednesday and was on track to finish the month higher, as traders responded to a series of verbal warnings from officials signaling Tokyo’s determination to support the currency. Finance Minister Satsuki Katayama said Japan and the US would maintain close communication as they seek to preserve stability in currency markets amid rising concerns over the yen’s weakness. She also said President Donald Trump expressed concern about the yen during a meeting with Prime Minister Sanae Takaichi. Japan’s top currency official Atsushi Mimura also said this week that the prime minister and finance minister, along with the US, had delivered a “very clear” message regarding excessive currency depreciation. Still, the yen remained under pressure from wide US-Japan interest-rate differentials, as the Federal Reserve’s tightening outlook continued to outweigh the Bank of Japan’s rate hikes.

The Japanese yen steadied near 157 per dollar on Tuesday as renewed verbal intervention from Tokyo lent support to the currency. Finance Minister Satsuki Katayama said Japan and the US would remain in close communication as they work to maintain stability in currency markets amid growing concerns over the yen’s weakness. Her comments followed a Friday phone call with US Treasury Secretary Scott Bessent, during which the two officials reiterated concerns that the yen was undervalued and agreed to deepen cooperation. Japan’s top currency official Atsushi Mimura also said this week that the country’s prime minister and finance minister, together with the US, had sent a “very clear” message on excessive FX depreciation. The yen has remained under pressure despite the Bank of Japan’s rate hike this month, while subsequent BOJ guidance and rising expectations for further Federal Reserve tightening have fueled speculation that the US-Japan interest-rate differential could widen.