(Bloomberg) — The yen slid to the verge of 160 to the dollar, a key threshold that’s raising the specter that policymakers in Tokyo will swoop in again to defend the currency.
As rising US bond yields pushed the dollar higher, the yen slipped 0.1% to 159.94. It marked the third straight daily decline as traders brace for the Federal Reserve to step up its interest rate hikes, giving investors an incentive to shift cash to the US as yields surge further above those in Japan.
Japan’s chief currency official Atsushi Mimura on Thursday said he has a strong impression that the currency moves over the past few days have been “too fast” and reminded investors of the currency-market intervention a few months ago, when the yen hit a 40-year low of nearly 164 to the dollar.
“Mimura seems to be sending a signal that 160 is some sort of line in the sand, which is always risky since markets never met a line in the sand that they didn’t want to test,” said Win Thin, chief economist at Bank of Nassau 1982.
The currency weakness reflects the significant gap in interest rates between the US and Japan, with the Bank of Japan’s benchmark set at 1.25%, more than 2.5 percentage points below the Fed’s.
Bank of Japan Governor Kazuo Ueda has kept the door open to further hikes after the central bank held rates steady at its October meeting, but the prospect of a more aggressive pace of Fed tightening is pressuring the yen. The latest weakness also marks a reversal from recent weeks, when the currency regained some of its traditional haven appeal during bouts of equity-market turmoil.
While government officials have emphasized it’s the speed and disorderliness of currency moves rather than any specific level that triggers intervention, a breach of 160 could test their tolerance. Market watchers have viewed the level as a potential line in the sand for Japanese authorities, with moves past that level prompting intervention earlier this year, and the currency rallied strongly after crossing that level in early September.
Tokyo and Washington in late July conducted their first joint intervention to support the yen, raising risks for those betting against the yen. The Asian nation intervened in the currency market three times over the summer to prop up the yen, spending a total of ¥15.4 trillion ($96.4 billion) over the period.
In September, US President Donald Trump expressed concern about the weakness of the yen during a meeting with Japanese Prime Minister Sanae Takaichi in New York. Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent have both signaled a willingness to intervene again if necessary.
Bessent has repeatedly voiced support for a stronger yen and has effectively challenged traders to test his resolve, while Katayama has warned speculators that she was prepared to take action in the currency market again if needed.
–With assistance from Eru Ishikawa and William Selway.
(Updates with latest levels in second paragraph.)
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