Yen Falls Below 160 Per Dollar Amid Interest Rate Pressure

The Japanese yen has fallen below 160 per dollar for the first time in about a month, reaching its lowest level since late July. The decline comes as Federal Reserve Chairman Kevin Warsh reiterated the central bank's commitment to achieving 2% inflation.

In response to the yen's surge on July 31, Japan and the US conducted coordinated intervention, aiming to end 'excess volatility and disorder' in the currency. However, this move has since been reversed, with the yen surrendering much of its gain.

The yen's weakness is largely due to the interest-rate differential between the US and Japan, which favors dollar assets. The Bank of Japan (BOJ) raised its policy rate to 1% in June but left it unchanged at the July meeting, while the Federal Reserve maintains a federal funds target range of 3.5%-3.75%. This substantial gap supports the yen carry trade, where investors borrow in lower-yielding currencies and invest in higher-return assets.

Japan's Finance Ministry has expressed its readiness to intervene again, stating it will not hesitate to conduct further joint intervention with the US Treasury. In fact, Finance Minister Satsuki Katayama emphasized Japan's preparedness to take decisive action on speculative moves in foreign exchange markets.