Yen breaks through 160 per dollar as figures show the US Treasury bought yen in July

The yen dropped below 160 per dollar, heightening the risk of intervention by Japan^2,7.

Japan’s finance minister vowed action as the yen breached the 160 threshold⁹.

Finance Minister Satsuki Katayama said Japan would take appropriate action to stem the yen’s slide if required⁸.

At the same time, figures showed that the US Treasury bought yen in July, while the Fed made no solo foreign-exchange interventions in the third quarter^3,11.

The Treasury bought about $500 million of yen alongside Japan’s July intervention⁴.

Tokyo had already fired off verbal warnings as weakness in the yen stoked intervention alerts; this week the currency crossed the line^2,5.

Why it matters to investors

The scale of the US role is the issue: a limited US part in Japan’s intervention has undermined its deterrent value as the yen touched 160¹.

“People have been worried that coordinated intervention could be very powerful, but this shows that it’s not,” one person quoted on the episode said¹.

The July operation worked for a time: the yen recovered quickly, and between 30 July and 3 August the dollar fell from around 164 yen to around 155 yen^3,11.

The weak currency is feeding inflation at home, as Bank of Japan data showed import prices rose 24.8% on a yen basis in October from a year earlier, after 23.8% in September⁵.

The yen is also becoming too hard for some investors to trade, as interest-rate differentials have become less reliable guides while Bank of Japan tightening and persistent capital outflows pull in different directions⁶.

Japanese government bonds fell as the Treasury rout extended on bets that the Fed will raise rates, and overnight-index swaps now imply about an 87% chance of a further Bank of Japan rate increase¹⁰.

What to watch

The immediate question is whether Tokyo follows its warnings with action, and whether Washington joins in on a larger scale than in July^4,8.

Divisions at the central bank are a second factor: Bank of Japan board member Toichiro Asada said the bank needs to tread carefully when tightening, warning that higher interest rates could hurt growth¹².

The yen’s move below 160 also comes amid concern over US and Japanese interest rates, with US yields rising on bets of further Fed hikes^7,10.

For holders of Japanese assets, the combination of a weaker yen, falling bond prices and uncertain support from Washington is what the next intervention, if it comes, will be tested against^1,10.