LONDON, June 5 - The Japanese yen pressed close to the 160-per-dollar threshold on Friday, renewing concerns about currency intervention as the dollar remained resilient ahead of U.S. nonfarm payrolls and amid renewed Middle East tensions. Officials have issued sharp warnings as the yen slid toward a level that has prompted action in the past.
Yen vulnerability and official warnings
The yen moved toward the psychological 160-per-dollar barrier that has previously triggered official steps, prompting a public rebuke from Finance Minister Satsuki Katayama. Katayama said Japan was prepared to respond at any time and reserved the right to take "decisive action" against excessive volatility. The currency was last quoted at 159.93 per dollar.
That move left the yen on track for a fourth consecutive weekly loss versus the dollar, erasing gains tied to official buying in late April and early May. Market positioning has reflected that trend: investors have built the largest bearish yen position since July 2024 in recent weeks, holdings that LSEG data value at nearly $9 billion.
ANZ's head of Asia research, Khoon Goh, noted that traders appeared cautious about pressing the Bank of Japan too hard while the U.S. nonfarm payrolls report was pending. "Markets are probably a bit reluctant to try to test the BOJ too much" ahead of the U.S. data, he said, referencing renewed willingness by authorities to intervene.
Policy outlook in Japan
Market expectations point to an imminent shift in Japanese policy - the Bank of Japan is widely expected to raise interest rates this month as rising energy import costs contribute to price pressures. Money markets also indicate the prospect of a second hike by year-end. Absent a substantial change in the domestic rate or growth outlook, analysts say there is limited reason to unwind the existing large bearish yen positions.
Gulf hostilities lift oil and underpin the dollar
Peace talks between the U.S. and Iran have stalled, and a recent resurgence in hostilities has kept crude oil prices above $90 a barrel. That dynamic has amplified safe-haven flows into the dollar and raised concerns about the impact of higher energy costs on import-dependent economies.
The dollar has been the standout currency this week, gaining roughly 0.4% against a basket of major currencies and about 1.3% over the past month. Support has come from robust U.S. data, expectations for further Federal Reserve interest-rate increases and the appeal of the dollar as a refuge amid energy-related uncertainty affecting the euro zone, Japan and China.
Citi's U.S. economic surprise index has reached a three-year high as measures of employment, consumer spending and business activity outperformed forecasts, re-energizing narratives of U.S. economic strength. U.S. 10-year Treasury yields have risen by around 50 basis points since the start of the Iran war, a larger move than that seen in most major economies other than Britain, where 10-year yields are up about 66 basis points.
Jeremy Stretch, head of G10 FX at CIBC Capital Markets, summed up the backdrop: "The U.S. is still providing positive economic surprises ... with two-year yields north of 4%, you end up with a scenario where suddenly the conditions for the dollar remain reasonably supportive. And conversely, from a euro perspective, the perpetuation of elevated energy prices remains a drag on activity there."
European currencies and market focus on U.S. payrolls
The euro has weakened about 1% over the past month despite market expectations for up to three European Central Bank rate hikes this year; on Friday it was trading up 0.2% at $1.1634. The pound inched higher to $1.345.
Market attention is centered on U.S. nonfarm payrolls later in the day. A Reuters poll indicated a projected increase of 85,000 jobs in May following a 115,000 rise in April, with the unemployment rate expected to remain steady at 4.3%. The employment report is widely seen as a key short-term driver for direction in interest rates and currency markets.
Implications for markets
The current mix of renewed Gulf tensions, resilient U.S. data and a potentially tightening Bank of Japan has created a backdrop in which the dollar is broadly supported and the yen remains under pressure. Currency intervention risk, shifting interest-rate expectations and energy price volatility are central factors that market participants are watching closely.
Given these dynamics, investors and policymakers will be closely monitoring incoming U.S. data and any further developments in the Middle East for cues that could change the balance of risks across currencies, bond yields and energy markets.