SINGAPORE — The Japanese yen has sunk to levels not seen in nearly four decades, hovering around 163 per dollar on Wednesday as climbing oil prices and rising U.S. Treasury yields continued to strengthen the American currency and put traders on high alert for possible government intervention by Japan.
During Tuesday’s New York trading session, the yen fell as far as 163.24 against the dollar — its lowest point since late 1986. Early Wednesday in Asian markets, it remained at 163.21.
The dollar strengthened broadly overnight, briefly pushing the euro below $1.14. That strength continued as U.S. forces carried out an 11th consecutive night of strikes on Iran.
Commonwealth Bank of Australia currency strategist Samara Hammoud noted that the ongoing conflict in the Middle East is likely to keep the dollar strong. “A continuation of the Middle East conflict should support the dollar because of its safe-haven status and typically positive correlation with oil prices,” she said.
The euro was last trading at $1.1401. The Australian dollar was barely holding onto the 70-cent level, while the New Zealand dollar was sitting just above its 200-day moving average of $0.5825.
The British pound also came under pressure, dipping below its 200-day moving average to $1.3385, as traders tried to assess how new UK finance minister John Healey intends to pay for government spending plans.
Oil prices surged as well, with Brent crude futures briefly reaching a six-week high of $91.99 per barrel on Tuesday. Meanwhile, U.S. Treasury yields rose across the board, pushing the 30-year yield to a two-month peak of 5.15%.
When the 30-year yield climbs above 5%, it tends to send ripples through global financial markets, raising the hurdle for riskier investments and lending additional support to the dollar. A 20-year Treasury auction scheduled for later Wednesday was drawing attention from investors.
The benchmark 10-year Treasury yield also touched its highest level since May overnight, reaching 4.64%, and remained near that mark in early Asian trading — adding further downward pressure on the yen.
Japan has been dealing with a persistently weakening yen for years, driven by the country’s low interest rates and more recent concerns about its national finances. Japanese authorities carried out record-setting currency intervention in April and May after the dollar-to-yen exchange rate climbed above 160.
However, the effects of those efforts have faded. Officials have since pulled back from making direct intervention threats, instead opting for a strategy of surprise moves intended to keep currency traders guessing. That approach is designed to allow authorities to act if the yen drops sharply — or even gradually — to new lows.
A brief boost came when Japan’s finance minister suggested the country’s government pension fund might shift some of its overseas holdings into domestic markets, but that optimism has since faded, bringing the risk of official yen-buying back into focus.
Analysts at HSBC, led by global head of foreign exchange research Paul Mackel, said in a recent outlook report that another round of intervention may be coming. “We think (Japan) may soon intervene again,” they wrote.
However, the HSBC team cautioned that any intervention is unlikely to produce lasting results unless the Bank of Japan raises interest rates several times in a more aggressive direction, the U.S. Federal Reserve shifts back toward cutting rates, or market sentiment toward Japan’s fiscal situation improves.
“Our base case is for dollar/yen to be trapped in a new and higher range, mainly 160-165, capped by periodic intervention but supported by negative real rates in Japan,” the analysts added.
