Yen hits 40-year low vs dollar on rising Treasury yields and Fed hike bets

Created at 1 Jul · 12:58 AM2 sources↑ Market-relevant2 events

IN SHORT

The U.S. dollar surged to a 40-year high against the Japanese yen, driven by rising Treasury yields and increased expectations of a Federal Reserve rate hike. Traders are pricing in a higher probability of a September hike, while Japanese authorities consider intervention.

Key Numbers

162.77yen per dollar

40-yearlow for yen

9 basis pointsintraday rise in 10-year Treasury yield

4.55%10-year Treasury yield

67%chance of Fed rate hike in September

101.24dollar index

$1.1409euro against dollar

$73.31Brent crude price

$69.96U.S. crude price

$3,990gold price per ounce

Who's Involved

Kevin Warsh

Fed Chair

Federal Reserve

U.S. central bank

Ministry of Finance

Japanese government body

Chris Weston

Head of research at broker Pepperstone

Tim Baker

Macro strategist at Deutsche Bank

Yen hits 40-year low vs dollar on rising Treasury yields and Fed hike bets

↳ Why This Matters

The yen's sharp depreciation impacts global trade dynamics, potentially affecting Japanese export competitiveness and increasing import costs for the nation. It also signals growing divergence in monetary policy between the U.S. and Japan, influencing global capital flows and currency markets.

Key facts

The dollar reached a 40-year high against the yen, trading at 162.77 yen.
Rising U.S. Treasury yields and expectations of a Federal Reserve rate hike fueled the dollar's strength.
Traders are increasing bets on a Fed rate hike in September, with a 67% probability priced in.
Japanese authorities are reportedly considering intervention to support the yen.
Asian markets showed caution, while European and U.S. futures eased slightly.

The U.S. dollar strengthened to a 40-year high against the Japanese yen, reaching 162.77 yen per dollar, primarily driven by rising U.S. Treasury yields and increased expectations of a Federal Reserve rate hike. Traders are now pricing in a 67% probability of a Fed rate hike in September, up from 20.5% a month ago, supported by resilient U.S. labor market data. Japanese authorities are reportedly considering intervention to support the yen, though past efforts have had limited lasting effect. Asian share markets began the quarter cautiously, while European and U.S. futures saw minor dips. Major banks are set to report earnings soon, which will be crucial in determining if earnings expectations can offset higher bond yields and potential rate increases.

Frequently asked questions

The yen's decline is attributed to rising U.S. Treasury yields and increasing expectations that the Federal Reserve will hike interest rates, making dollar-denominated assets more attractive.

Traders are pricing in a 67% chance of a Federal Reserve rate hike in September, a significant increase from previous expectations.

Japanese authorities are reportedly considering intervention, but past efforts have had limited lasting impact. The effectiveness of future interventions remains uncertain.

Asian share markets are showing caution. Japan's Nikkei climbed, while South Korea's main index slipped amid booming AI-related demand for semiconductors.

What Happens Next

01Focus on upcoming U.S. nonfarm payrolls report.

02Monitor for potential intervention by Japanese authorities.

03Observe Fed Chair Kevin Warsh's remarks at the ECB conference.

04Await corporate earnings season, particularly from major banks and tech companies.

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How It Developed

The dollar rose to a 40-year high against the yen, boosted by Treasury yields and anticipation of a Fed rate hike.

Asian share markets started the new quarter cautiously amid hurdles in U.S.-Iran talks and potential Japanese intervention.

Bond markets faced pressure as U.S. Treasury yields spiked on increased odds of Federal Reserve rate hikes.

Futures imply a 33% probability of a Fed rate hike at its next meeting, with a September move priced around 70%.

Japan's Nikkei climbed 1.0%, with manufacturing sentiment at its best since 2014.

South Korea's main index slipped 1.4% on booming AI-related demand for semiconductors.

Wall Street notched its biggest quarter since 2020, led by an 88% climb in the Philadelphia Semiconductor Index.

Yields on 10-year Treasuries stood at 4.55%, having jumped almost 9 basis points on Tuesday.

Sources

Yen sinks to four-decade low as dollar gets yields boostReuters