Key facts
- The Japanese yen fell to 162.41 against the U.S. dollar, its weakest point since 1986.
- Japanese authorities have stated they are prepared to intervene in currency markets if necessary.
- The yen is on track for its fourth consecutive quarterly decline.
- Speculative short positions on the yen are near a two-year high.
- The dollar index retreated from 13-month highs as traders await U.S. jobs data.
- The euro, Australian dollar, and British pound all weakened against the dollar.
The Japanese yen plummeted to a 40-year low against the U.S. dollar on Tuesday, reaching 162.41 yen per dollar, fueling speculation of imminent intervention by Japanese authorities. This marks the yen's lowest level since 1986 and sets it on course for its fourth consecutive quarterly decline.
Japanese Finance Minister Satsuki Katayama reiterated that authorities are prepared to take appropriate action at any time, though refrained from stronger language. Analysts suggest intervention is a matter of 'when, not if,' but note that such actions may only offer temporary relief against the broader trend driven by a significant interest rate differential between Japan and the U.S.
Speculators have increased their net short positions on the yen, nearing two-year highs. Previous interventions, totaling 11.7 trillion yen, have failed to reverse the yen's downward trajectory as traders price in potential rate hikes from the U.S. Federal Reserve. The upcoming U.S. jobs report is a key focus, as three months of stronger-than-expected payroll gains have supported the Fed's hawkish stance, with traders anticipating a 63% chance of a rate hike by September.
Meanwhile, the dollar index, measuring the U.S. currency against a basket of six major currencies, recovered some losses to trade at 101.28. The dollar is poised for its second consecutive quarterly gain. Investors have aggressively bet on dollar strength, impacting other currencies. The euro fell to $1.1403, near a one-year low, while the Australian dollar hit a three-month low of $0.6867, and sterling softened to $1.3237.
BlackRock Investment Institute strategists noted that current dollar levels align with fundamentals, making a sustained appreciation cycle less likely and suggesting that market expectations for Fed rate hikes might be overdone. Separately, a Supreme Court ruling prevented President Donald Trump from firing Fed Governor Lisa Cook, easing concerns about the Federal Reserve's independence.