The dollar approached 160 yen. What could stop the USDJPY rally
By the morning of November 12, the dollar had closely approached the 160 yen mark, rising to approximately 159.93 — a high not seen in over two months. Japan's Deputy Finance Minister Atsushi Mimura described the recent currency movements as too rapid and recalled the yen purchases made in summer, one of which Tokyo carried out jointly with Washington. Following his comments, the dollar retreated to the session low, then recovered some losses and traded around 159.70. Buyers continue to be supported by expectations of an interest rate hike by the Federal Reserve in December.
In August, we identified the 160 level as a benchmark to assess how long the effect of the summer intervention would last. In the first sessions after publication, USDJPY remained below 160, but by the end of August it crossed this level again, reaching 160.39 on September 2. Now the market is testing this level again following US inflation data coming in above forecasts.
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Why Tokyo is speaking about the exchange rate again
At the end of July and beginning of August, Japan's Ministry of Finance spent approximately 15.4 trillion yen buying yen. At that time, USDJPY retreated from its July high of 163.99 and, at the peak of the yen's strengthening, fell to 155.20. This episode explains why even Mimura's warning caused dollar buyers to step back temporarily.
Japanese authorities also have an internal reason to monitor the exchange rate. According to the Bank of Japan, import prices converted into yen rose by 24.8% year-on-year in October. The weaker the yen, the more expensive overseas purchases become for Japanese companies, making it harder for them to contain rising wholesale prices.
Why the dollar held near 160
US consumer prices rose by 0.4% month-on-month in October against a forecast of 0.3%. After the release, traders became more confident about a Federal Reserve rate hike in December. As long as US assets offer higher yields, the interest rate differential supports demand for the dollar against the yen. Although the summer intervention sharply reversed the pair's trend, by the end of August the dollar's yield advantage helped it return to 160.
According to analysts FreshForex, in the next few sessions USDJPY may break through the 160 mark and test 160.40, the area of the September 2 high. Such a scenario is supported by expectations of a Fed rate hike and the dollar's rapid recovery after Mimura's comments. Near 160, prepare for sharp exchange rate swings — even a new warning from Tokyo could quickly reverse the pair.
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