The dollar reached 159.94 yen early Thursday in Tokyo, marking its strongest level in more than two months. The move was driven by hotter-than-expected US inflation data and rising market expectations for a Federal Reserve rate hike.
US consumer prices rose 0.4% in October from September, exceeding the 0.23% forecast. Following this data, odds of a December 9 Fed rate hike climbed to 100% according to CME FedWatch data. The US dollar index also hit a 19-month high.
The yen weakened to just short of 160 per dollar, a level markets closely monitor as a trigger for Japanese intervention. Atsushi Mimura, Japan's vice minister for international affairs, warned on Thursday that recent currency moves have been excessively rapid, signaling potential government action.
Previous Intervention Limits
Japan's Finance Ministry spent a record ¥27 trillion supporting the yen in 2024, with the bulk occurring in July and early August. A single operation on July 30 reached ¥7.98 trillion, the largest one-day intervention on record. Despite these efforts, the yen weakened again to 160.16 per dollar within a month, surrendering more than half its gains.
The Bank of Japan is expected to raise rates to 1.5% from 1.25% at its December 17-18 policy meeting. However, a quarter-point increase would only match a similar Fed move, keeping the rate gap unchanged. A half-point Fed hike would widen it further, limiting the effectiveness of monetary policy in supporting the yen.
A weakening yen has increased Japan's import costs, with import prices rising 24.8% in yen terms according to the latest producer price data.
