Key facts
- U.S. Treasury official Scott Bessent urged Japan to raise interest rates to strengthen the yen.
- The yen was trading near 159.81 per dollar, having previously fallen past the 160 level.
- Markets are anticipating a 73% chance of a Bank of Japan rate hike in September.
- Renewed Middle East tensions pushed Brent crude futures above $91 a barrel.
- The U.S. dollar index declined as traders considered a potential Federal Reserve rate hike in September.
The yen stabilized near the 160-per-dollar level on Tuesday, following U.S. Treasury official Scott Bessent's call for Japan to raise interest rates to bolster the currency. Bessent expressed confidence that Japanese authorities would take action to strengthen the yen, a sentiment that has led markets to price in a 73% chance of a Bank of Japan rate hike in September.
Simultaneously, renewed Middle East tensions, including threats of further strikes against Iran by U.S. President Donald Trump, pushed Brent crude futures above $91 a barrel and increased Treasury yields. This geopolitical backdrop has also influenced currency markets, with the U.S. dollar weakening as investors reassess the Federal Reserve's potential for a September rate hike following hawkish comments from Chairman Kevin Warsh. Traders now see a 65% chance of a Fed hike.
Analysts suggest that a single September hike from the BOJ may not be enough to sustainably strengthen the yen, given high U.S. yields and worsening terms of trade for Japan due to rising oil prices. The euro and sterling saw modest gains against the dollar in August.