Yen approaches the 160 threshold... Will monetary authorities intervene?

The Japanese yen fell in the European market on Tuesday against a basket of major and minor currencies, deepening its losses against the US dollar for a second consecutive day and hitting a three-week low amid fears of renewed conflict with Iran, particularly after the expiration of the 60-day US-Iran ceasefire brokered by Pakistan.

The yen is approaching the key threshold of 160 yen per dollar, fueling speculation over whether monetary authorities in Japan and the United States may need to intervene in the foreign exchange market again to support the Japanese currency.

The Price

• Japanese yen exchange rate today: The dollar rose 0.2% against the yen to ¥159.78, from an opening level of ¥159.43, with a session low of ¥159.31.

• The yen ended Monday down 0.1% against the dollar, its third daily loss in four sessions, as the impact of Japanese and US intervention in the foreign exchange market continued to fade.

US dollar

The US Dollar Index rose 0.15% on Tuesday as it attempted to recover from an 11-week low, heading for its first gain in four sessions and reflecting a rebound in the US currency against a basket of major and minor currencies.

In addition to buying from lower levels, safe-haven demand for the dollar has strengthened amid fears of renewed conflict with Iran, particularly following the collapse of the temporary US-Iran peace agreement.

The 60-day deadline under the "Islamabad Understanding" expired without a final agreement between the United States and Iran. Washington has refused to extend the truce and is demanding Tehran's surrender, while Iran has said it is prepared to adopt a "fully offensive" military posture if diplomatic efforts fail.

Global oil prices

Oil prices rose around 0.5% on Tuesday, extending their gains for a third consecutive day, as negotiations between the United States and Iran stalled and shipping traffic through the Strait of Hormuz came to a halt.

Higher global oil prices are renewing concerns over accelerating inflation, which could push central banks worldwide toward raising interest rates in the near term.

Japanese bonds

The yield on Japan's 10-year government bond rose 2.5 basis points to 2.945% during Tuesday's session, its highest level since September 1996.

The rise to a three-decade high was driven by higher global bond yields and growing speculation that the Bank of Japan could raise interest rates in the near term.

Japanese interest rates

• Market pricing for a 25-basis-point interest rate hike by the Bank of Japan at its September meeting remains above 80%.

• Investors are awaiting further data on inflation, unemployment and wages in Japan to reassess those expectations.

The ¥160 threshold

Monetary authorities in Japan and the United States are closely monitoring movements in the Japanese currency, particularly as the yen approaches a break below the key ¥160-per-dollar threshold.

The yen recorded its largest weekly loss in three months last week as the impact of Japanese and US intervention in the foreign exchange market faded, prompting traders to speculate that another round of official yen purchases may be needed to halt the currency's current decline.

The Japanese currency has now surrendered around half of the gains it achieved following Japanese and US intervention in the foreign exchange market in late July and early August.