The Japanese yen fell against the dollar on Tuesday, with USD/JPY up 0.3% to 160.22, marking a reversal from recent intervention speculation. U.S. Treasury Secretary Scott Bessent openly urged Bank of Japan Governor Kazuo Ueda to raise interest rates during a G20 finance leaders gathering in Asheville, North Carolina, signaling the end of Abenomics and noting that he possessed "information that the market doesn't have" regarding Japanese stabilization efforts. Swap markets responded by lifting the probability of a BoJ rate hike in September to nearly 88%, with the hawkish expectations pushing Japan's 10-year bond yield above 3% for the first time since August 1996. This represents a significant shift from the previous intervention speculation that had driven the yen to one-week highs.
Over the past month, Japan's Ministry of Finance has already deployed a record $96.4 billion to shore up the yen, which had slumped to a four-decade low. The currency movement is generating expectations among traders that authorities will take further action to support the Japanese currency. BNY strategists note that while fundamental drivers still favor the dollar, the intervention risk adds a layer of uncertainty that could trigger volatility. Traders are now weighing the likelihood of official action against the broader economic backdrop, including interest rate differentials and global risk sentiment. The persistent weakness stems from the wide interest-rate gap between Japan and other major economies, as well as market concerns about Japan's fiscal discipline.
The U.S. dollar index strengthened 0.3% to 99.69 on Tuesday, supported by safe haven demand amid escalating U.S.-Iran tensions. U.S. Central Command launched strikes against Islamic Revolutionary Guard Corps targets, while Iranian state media reported attacks on a factory in Qeshm and non-military targets in Hormozgan. Brent crude futures surged 5.3% to $95.25 per barrel, with U.S. West Texas Intermediate crude topping $90 for the first time since June 11. Thierry Wizman, global FX strategist at Macquarie, noted that "the USD can still benefit from higher crude oil prices as the U.S.'s terms of trade improve." Additionally, a sell-off in U.S. Treasury yields picked up steam, with the benchmark 10-year yield hitting its highest level since November 2023.
Following the conclusion of the G20 finance ministers and central bank governors meeting, Japanese Finance Minister Satsuki Katayama told reporters that coordinated foreign exchange intervention helps maintain global market and economic stability. She said she had explained the joint U.S.-Japan action to the assembled global financial leaders, and that no one raised objections. U.S. Treasury Secretary Scott Bessent has defended the U.S. decision to participate in supporting the yen, warning that extreme yen volatility could transmit into higher U.S. interest rates. BoJ Governor Kazuo Ueda said on Tuesday that the central bank will discuss whether to raise interest rates at its September 17-18 meeting as policymakers assess growing inflation risks. Ueda said the BoJ intends to keep raising rates if economic and price developments move in line with its projections, while Takata added that the BoJ should "consider a broad range of options, not just a 0.25% rate hike each time" and needs "a more nimble approach with rate hikes."
