US Dollar Strength Ignites USD/JPY Rally as Tokyo Prepares to Defend Currency
The USD/JPY currency pair has risen for five consecutive sessions, driven by strong US dollar performance and downward pressure on the yen. The pair is trading near 158.80, having recovered most of its losses from earlier this month when it slipped to around 160. Market participants are weighing policy paths after recent meetings between the Federal Reserve and Bank of Japan.
The Federal Reserve's decision to raise interest rates by 25 basis points last week has pushed the federal funds rate to 3.75%-4.00%, with markets increasingly pricing in another potential move from the Fed. The US dollar index is near 101.25, its strongest level since July 29.
The global bond sell-off has been linked to higher oil prices and inflation expectations, as well as heavy government borrowing and fiscal concerns. In Japan, the 10-year Japanese Government Bond yield reached about 3.08%, its highest since August 1996, despite the Bank of Japan raising its policy rate by 25 basis points to 1.25% - a 31-year high.
Rising US yields have underpinned the US dollar, with the 10-year Treasury yield at 5.16%, its highest level since 2007. The widening gap between US and Japanese interest rates has led to increased volatility in the currency market, prompting warnings of potential intervention from Tokyo.