TOKYO--The yen is under renewed pressure as fresh expectations of Federal Reserve monetary tightening dim the prospects of U.S.-Japan interest-rate differentials narrowing in the currency's favor.
Record $98.7 billion spending by Japan to prop up the yen over the past month in joint action with the U.S. has had limited success in reversing the currency's downtrend.
On Friday, the yen weakened to 160.20 against the dollar after Fed Chairman Kevin Warsh signaled his openness to raising interest rates. That was the first time the yen breached the key 160 level since the historic Japan-U.S. intervention in the currency market.
In a speech at the Jackson Hole economic symposium, Warsh said: "We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do."
The comments heightened expectations for rate hikes in the U.S., leading to a rise in Treasury yields and the dollar. Following U.S. bond market moves, the yield on 10-year Japanese government bonds rose to a fresh 30-year high of 2.95% on Monday. The dollar was last trading at 159.85 yen.
Still, U.S. Treasury Secretary Scott Bessent said in an interview that the yen's moves are "pretty well contained."
Bessent told Reuters on Sunday that he expects Bank of Japan Gov. Kazuo Ueda to "do the right thing" on monetary policy, with the backing of Prime Minister Sanae Takaichi. That echoes prior comments he has made voicing confidence in Ueda's handling of policy--a remark market participants interpreted as endorsing more rate hikes in Japan.
At an upcoming gathering of the Group of 20 finance ministers and central bank governors, Bessent may pressure Japan to maintain cautious fiscal discipline and call for BOJ interest-rate increases to mitigate yen-weakening risks, in exchange for coordinated interventions, said Nomura Research Institute's Takahide Kiuchi.
"Curbing yen weakness helps correct dollar strength and contributes to reducing the U.S. trade deficit," said Kiuchi, a former BOJ policy board member.
"The rise in Japan's long-term bond yields accompanying yen depreciation threatens to spill over into U.S. markets and disrupt U.S. economic and financial stability, making yen containment a benefit to the U.S. as well," he added.
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