Dollar's ¥160 Push Sparks BOJ Hike Expectations

The US dollar is once again pushing against the ¥160 mark in its ongoing battle against the Japanese yen, after Japan's inflation rate hit a two-year high of 1.9% in July.

Following a coordinated intervention by the US and Japan to support the yen three weeks ago, which saw the pair trade as low as ¥155, the dollar has now recovered most of its decline and is testing the resistance level at ¥160.

The Bank of Japan (BOJ) has been under pressure to raise interest rates to combat inflation, with one board member already voting for a 1.25% rate in July. Economists are increasingly predicting a quarter-point increase to 1.25% in September, which could support the yen by narrowing its yield disadvantage against the dollar.

However, traders remain cautious and remember that Tokyo specializes in attacking when everyone feels comfortable with their positions. The key to lasting yen strength lies in the BOJ delivering tighter policy, not just verbal warnings followed by a quiet recovery for the dollar.