[Edaily Reporter SIN SOO-JUNG ] The yen has once again surpassed the 160-yen-per-dollar mark. As the market keeps a close eye on the possibility of intervention by Japanese authorities in the foreign exchange market, downward pressure on the yen is mounting again amid growing expectations of a U.S. interest rate hike.

According to Reuters on the 31st (local time), the yen weakened slightly to 160.01 yen per dollar. It continued its downward trend after breaking through the 160-yen mark on the 28th. The market views the 160-yen-per-dollar level as a threshold at which the likelihood of intervention by Japanese authorities in the foreign exchange market increases.

The yen rebounded briefly after Japanese authorities intervened in the market last July but has since given back a significant portion of those gains. The recent strengthening of the U.S. dollar is placing additional pressure on the yen.

Market attention is focused not only on Japan but also on the U.S. response. U.S. Treasury Secretary Scott Bessent stated on the 30th that recent yen movements are “fairly well-contained.” Bank of Japan (BOJ) Governor Kazuo Ueda also said the central bank would “do the right thing” in terms of monetary policy.

Reuters reported that as the yen has once again crossed the 160-yen mark, interest is growing in whether Tokyo and Washington will take action again to support the currency’s value.

The wide U.S.-Japan interest rate differential remains the underlying cause of the yen’s weakness. Carlos Casanova, chief economist for Asia at UBP, said, “In the past, foreign exchange market intervention has only had a lasting effect when fundamentals were moving in the same direction,” adding, “The yen remains under pressure due to the still-wide interest rate gap, negative real interest rates, and the Bank of Japan’s cautious policy pace.”

In addition, the U.S. dollar strengthened as expectations for U.S. interest rate hikes grew again. Kevin Warsh, Chairman of the U.S. Federal Reserve (Fed), said on the 28th that if the Fed does not gain confidence that inflation is heading toward its 2% target, the Fed “will have to do something.” Reuters assessed this as Chairman Wash’s clearest signal yet that further tightening may be necessary to ease inflationary pressures.

Following Chairman Wash’s remarks, the market-implied probability of a September rate hike rose to 57%. The yield on the 2-year U.S. Treasury note, which is sensitive to changes in monetary policy, climbed to 4.33%, hitting its highest level in over a month.

The dollar index also remained at a high level. The dollar index, which measures the dollar’s value against a basket of six major currencies, stood at 99.6 that day. On the 28th, it rose 0.6%, hitting its highest level since August 17.

Shim Mo-sion, an FX strategist at OCBC, analyzed that Chair Wash’s emphasis on the Fed’s inflation target has reduced a major source of pressure on the dollar. He explained that this helped restore confidence in the Fed and eased market concerns about a decline in the currency’s value.

Going forward, the yen’s trajectory is expected to be influenced by both U.S. economic indicators and the Bank of Japan’s monetary policy. The market is closely watching the U.S. nonfarm payrolls report to be released this week and next week’s consumer price index data. Depending on the results of these indicators, the outlook for U.S. interest rates and the direction of the dollar could shift again ahead of the September Federal Open Market Committee (FOMC) meeting.

The two-day Group of 20 (G20) meeting of finance ministers and central bank governors, led by the U.S. and set to begin on the 31st, is another key variable. Reuters reported that the market is watching to see if the meeting will yield coordinated efforts to cut ties with Iran, as well as measures to alleviate concerns over rising U.S. debt and rising Treasury yields.