Yen slips past 160 as Warsh's hawkish stance outweighs Bessent's calm view

The yen's drop below 160 per dollar, pushing USD/JPY above that level for the first time since the record joint intervention, underscores the limited impact of the $98.7 billion spending effort against the pull of widening interest-rate gaps. It also shows that verbal or coordinated FX intervention alone cannot offset a genuine shift in relative monetary policy expectations.

The 10-year Japanese government bond yield rose to a fresh 30-year high of 2.95 percent, mirroring the increase in US Treasury yields following Warsh's comments. This adds another source of pressure, as higher Japanese long-term yields raise the risk of spillover into global bond markets given Japan's role as a major holder of foreign assets.

Bessent's characterization of the yen's moves as well contained, along with his continued deference to BOJ Governor Ueda on the pace of rate hikes, indicates that Washington is currently content to let Tokyo manage its own policy response rather than push for new intervention. That could mean the yen remains under pressure until the BOJ itself signals a policy change.

The prospect that at the G20 meetings Bessent might urge Japan to maintain fiscal discipline and pursue additional rate hikes in return for coordinated support introduces a diplomatic element that currency traders should monitor closely in the coming days.

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Earlier:

• Japan factory output beats expectations; retail sales rebound sharply

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The yen's decline through 160 demonstrates how ineffective Japan's record intervention has been in countering the pull of a more hawkish Federal Reserve.

Summary:

• According to the Wall Street Journal (gated), Japan spent a record $98.7 billion in coordinated action with the US over the past month to support the yen, but has had limited success in reversing its downtrend.
• On Friday, the yen weakened to 160.20 per dollar after Fed Chair Kevin Warsh signaled openness to raising interest rates, the first breach of 160 since the historic joint intervention.
• Warsh's Jackson Hole speech, in which he said the Fed needs confidence that underlying inflation is moving toward its target at sufficient speed, boosted Treasury yields and the dollar.
• The 10-year JGB yield rose to a new 30-year high of 2.95% on Monday, tracking the rise in US yields, with the dollar last trading at 159.85 yen.
• Treasury Secretary Scott Bessent described the yen's movements as well contained and said he expects BOJ Governor Kazuo Ueda to make the right policy decisions with the backing of Prime Minister Takaichi.
• Takahide Kiuchi of Nomura Research Institute says Bessent might use the upcoming G20 gathering to press Japan on fiscal discipline and further BOJ rate hikes in exchange for coordinated intervention support.

The yen breached the closely watched 160 level against the dollar for the first time since last month's record joint Japan-US intervention, the Wall Street Journal reported, as fresh expectations of Fed tightening undercut hopes that US-Japan interest-rate differentials would narrow in favor of the yen. The move came after Fed Chair Kevin Warsh signaled openness to raising rates at the Jackson Hole economic symposium, telling attendees "the Fed must be confident that underlying inflation is moving toward its objective clearly and at sufficient speed, or there remains work to do."

The Journal reports that Japan spent a record $98.7 billion in coordinated action with the US over the past month in an attempt to prop up the yen, an intervention that has had only limited success in reversing the currency's broader decline. Friday's slide to 160.20 per dollar marked the first time the yen fell below that level since the intervention, underscoring how quickly the currency's earlier stabilization has reversed.

Warsh's remarks also rippled through fixed income markets, pushing Treasury yields and the dollar higher and pulling Japanese government bond yields up in turn. The 10-year JGB yield reached a new 30-year high of 2.95 percent on Monday, following the rise in US yields, while the dollar was last quoted at 159.85 yen.

Despite the fresh pressure, US Treasury Secretary Scott Bessent told Reuters that the yen's moves remain well contained, and said he expects BOJ Governor Kazuo Ueda to make the right monetary policy decisions with the backing of Prime Minister Sanae Takaichi, according to the Journal. That echoes prior comments from Bessent expressing confidence in Ueda's approach, remarks market participants have interpreted as an implicit endorsement of further BOJ rate hikes.

Takahide Kiuchi of Nomura Research Institute, a former BOJ policy board member, told the Journal that Bessent might use the upcoming Group of 20 finance ministers' meeting to press Japan to maintain fiscal discipline and pursue more BOJ rate increases in exchange for continued coordinated intervention support. Kiuchi added that curbing yen weakness would help correct broader dollar strength and lower the US trade deficit, while noting that rising Japanese long-term yields tied to yen depreciation risk spilling over into US markets, making yen containment a shared interest for both countries.