Hot US Inflation Drags the Yen Close to 160. Will Japan Step In Again?

The dollar climbed to 159.94 yen early Thursday in Tokyo, its strongest level in more than two months. Hot US inflation data and rising bets on a Federal Reserve (Fed) rate hike drove the move.

That leaves the yen just short of 160, a level markets watch for signs of Japanese intervention. Japan spent a record sum supporting the yen this year, but most of those gains have since faded.

Why a Hawkish Bank of Japan Isn’t Rescuing the Yen

US consumer prices rose 0.4% in October from September, above the 0.23% forecast. The odds of a December 9 Fed rate hike then rose to 100%, CME FedWatch data showed.

Fed Governor Christopher Waller had also said a half-point hike should be considered if October inflation ran hot. Those bets lifted the US dollar index to a 19-month high.

In Japan, wholesale prices rose 7.1% in October from a year earlier, above the 6.5% forecast. Many analysts expect the Bank of Japan (BOJ) to lift rates to 1.5% from 1.25% on December 17–18.

However, a quarter-point BOJ hike would only match a quarter-point Fed move. The gap between US and Japanese rates would stay the same. A half-point Fed hike would widen it further.

With rate moves unlikely to close that gap soon, Japan’s Finance Ministry has become the yen’s main backstop.

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Tokyo’s Warning Carries a Costly Track Record

The ministry sent a fresh signal on Thursday. Atsushi Mimura, its vice minister for international affairs, spoke to reporters as the yen neared 160.

“I won’t comment on the current exchange-rate level, but I believe recent currency moves have been excessively rapid,” he said.

He also said it was still too early to forget what happened this summer. Ministry data show Japan spent ¥15.40 trillion on July 30, July 31 and August 3. That lifted the year’s total past ¥27 trillion.

The previous annual record was about ¥15 trillion, set in 2024. The July 30 operation alone reached ¥7.98 trillion, a single-day record.

Within a month, the yen weakened again to 160.16 per dollar. It had given up more than half its gains from the summer operations.

That suggests intervention can buy time but cannot close the rate gap. A weak yen also raises Japan’s import bill. Import prices jumped 24.8% in yen terms, according to the latest producer price data.

That adds pressure on the Bank of Japan (BOJ) before its December 17-18 policy meeting. 

For Bitcoin (BTC), a sudden yen jump could still force traders to unwind yen-funded carry trades. The first test comes on December 9, when the Fed decides whether that gap widens again.

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