- Yen sinks to 40-year low as stronger dollar rides Treasury yield surge
The Japanese yen fell to its weakest level in four decades against the US dollar on Wednesday, as a sharp rise in US Treasury yields strengthened the greenback and raised fresh concerns that Japanese authorities may intervene to support the currency.
The dollar climbed to 162.77 yen in early Asian trading, a level Reuters said was well above the point that triggered earlier intervention by Japanese authorities to defend the currency. The move placed traders on alert for possible action from Tokyo, particularly as thin liquidity around the upcoming US public holiday could amplify the effect of any intervention.
The yen’s decline came as the dollar gained broader support from a rise in US Treasury yields. The 10-year Treasury yield rose by as much as nine basis points during Tuesday’s session before ending around 4.80 basis points higher, while the two-year yield rose three basis points and last stood at 4.1702%.
Against a basket of currencies, the dollar was steady at 101.24. The euro slipped 0.07% to US$1.1413, while sterling eased 0.09% to US$1.3252. The Australian dollar also fell 0.18% to US$0.6907, with the New Zealand dollar down 0.04% at US$0.5674.
Analysts said there was no single clear trigger behind the Treasury yield move, although month-end positioning may have contributed. Still, the broader market tone has shifted as investors reassess the outlook for US interest rates ahead of Thursday’s nonfarm payrolls report.
US labour market data released overnight showed job openings rose to a two-year high in May, reinforcing the view that the economy remains resilient despite subdued hiring. That has complicated expectations for the Federal Reserve, with traders now pricing in a 67.00% chance of a rate hike in September, up sharply from 20.50% a month earlier, according to the CME FedWatch tool cited by Reuters.
The shift in rate expectations has strengthened the dollar by widening the yield advantage of US assets over those in Japan, where interest rates remain comparatively low. For the yen, that gap continues to be a major source of pressure.
Chidu Narayanan, head of macro strategy for Asia-Pacific at Wells Fargo, told Reuters that markets are “close to potential action,” referring to the likelihood of another intervention by Japanese authorities. He said the issue was not necessarily a specific exchange-rate target, but whether the Ministry of Finance may need to step in to preserve credibility.
The currency’s slide adds to the policy dilemma facing Japan. A weaker yen can support exporters, but it also raises import costs, worsens pressure on households and complicates inflation management. If the decline becomes disorderly, authorities may feel compelled to intervene even though such action can be costly and difficult to sustain without a broader shift in underlying interest rate dynamics.
Market attention is now turning to comments from Federal Reserve Chair Kevin Warsh at the European Central Bank Forum on Central Banking in Portugal. Investors will be watching for any signals on whether the Fed is prepared to tighten policy further if inflation remains above target and labour market data continues to beat expectations.
For now, the yen’s four-decade low reflects a familiar but increasingly tense market equation: higher US yields, a stronger dollar and growing doubts over how long Japanese authorities can tolerate renewed pressure on their currency.
