Rising US Yields Press Yen Again
USD/JPY ended Thursday's trading session (August 20) with a gain of approximately 0.6% to reach the 159.12 level, reflecting the yen's depreciation against the US dollar. The greenback regained support as US Treasury yields turned upward, while the market questioned the effectiveness of the US Treasury Department's move to expand its long-term bond buyback program.
The dollar had previously come under pressure after the US government announced it would double the value of buybacks for 10- to 30-year bonds to at least US$4 billion per operation. While the policy initially lowered yields and weakened the dollar, the effect was short-lived as investors resumed selling bonds, pushing yields higher. This dynamic once again enhanced the appeal of dollar-denominated assets relative to the yen.
The rise in USD/JPY was also supported by expectations that the Federal Reserve retains room to maintain a tight monetary policy stance. Minutes from the July FOMC meeting revealed that some officials were prepared to support an interest rate hike, while many members assessed that further tightening might be necessary if inflation failed to move toward the 2% target. Markets estimate the probability of a rate hike in September at around 35%, rising to approximately 67% by December.
Nevertheless, the USD/JPY pair's climb toward the 160 level has renewed focus on the potential for Japanese intervention. The Japanese and US governments previously conducted a joint intervention on July 31 after the yen fell to its lowest level in nearly four decades. With the yen weakening back toward the 159 range, the market is expected to become increasingly sensitive to comments from Japanese officials and policy signals from the Bank of Japan. While high US yields continue to provide support for USD/JPY, the risk of intervention could cap the pair's gains. (CP)
