Yen Nears 160 Per Dollar Again, Raising Watch for More US-Japan FX Intervention

The yen is approaching 160 per dollar again, sharpening market focus on the possibility of another joint foreign-exchange intervention by the US and Japan.

Bloomberg reported on August 12 that the yen traded at 159.43 per dollar in New York. The Japanese currency has weakened more than 1% against the dollar this month, surrendering part of the gains it made after US-Japan joint intervention earlier in August.

The two countries previously stepped in to buy yen together for the first time since 1998 after the dollar-yen rate approached 164. The exchange rate briefly fell into the 155-yen range, but has since climbed back toward 160.

Investors are still weighing the chance of further intervention.

"It is too early to conclude that the possibility of additional intervention has disappeared," Nathan Tuft, a senior portfolio manager at Manulife Investment Management, said. Japanese authorities have already shown their willingness to act jointly with the US Treasury, he added, and investor caution would intensify if the exchange rate moves back toward the levels that prompted the latest intervention.

Still, intervention alone may not be enough to sustain yen strength. Japan's policy rate stands at 1%, while the Federal Reserve's benchmark rate is 3.50% to 3.75%, leaving a wide gap between the two countries.

Shusuke Yamada, a strategist at Bank of America, said the joint US-Japan intervention had bolstered market confidence in Japan's resolve to defend the yen. That confidence has weakened somewhat over the past week, however, as the exchange rate resumed rising without further intervention.

Markets are also focused on further rate increases by the Bank of Japan as the key factor in determining the yen's direction. Derivatives markets are pricing in roughly a 60% chance of a BOJ rate hike in September, while an October increase is largely already reflected in prices.