The yen weakened past 160 per dollar again, raising the risk that Japanese authorities may re-enter the foreign exchange market to intervene, after a major intervention in late July only provided temporary support. Strategists point to 161 yen per dollar as the first key level, with the 162.9-163.3 range being the area of the last intervention. Previous actions have focused on surprising the market. Japan's Ministry of Finance revealed it spent a record $96.4 billion to support the yen. Meanwhile, Japanese and U.S. finance ministers signaled readiness to act again. Swap markets show investors assign a 90% probability that the Bank of Japan will raise interest rates at its September 18 meeting. However, analysts believe intervention alone may not be sufficient as long as Japan's real interest rates remain deeply negative.
Yen weakens past 160, intervention risk high; BOJ rate hike expected, but real rates negative, so yen may stay weak.
High intervention probability and BOJ rate hike expectations may push yields up, but intervention could also signal policy tightening, leading to higher yields.
