USD/JPY Surges Above 160 as Warsh Remarks Boost Dollar

The USD/JPY currency pair broke above 160 for the first time since July 29 after comments from Kevin Warsh supported the dollar, driving Treasury yields higher and pushing equities into a lull. The implied probability of a Federal Reserve rate hike in September rose to 60% from 38%, while futures markets put the likelihood of two federal funds rate hikes in 2026 at 49%, up from 21% before Warsh's remarks at Jackson Hole.

The pair has also retraced half of its decline following a record $98.7 billion currency intervention that saw it drop below 140. Geopolitical tensions, particularly after US strikes on Iran and retaliatory attacks on American bases in Jordan, added pressure through energy markets, lifting Brent crude back above $90 per barrel and reinforcing inflation concerns.

Treasury Secretary Scott Bessent addressed Congress about Washington's role in coordinated FX intervention, citing Japan's status as the largest holder of Treasuries and the risk that disorderly yen moves could raise US borrowing costs. Separately, futures markets price the probability of a Bank of Japan hike at over 80% at its September meeting.