Yen Slides Back to 158s Amid Rising US Yields and Rate Hike Fading Impact

The yen's recent decline has continued despite the Bank of Japan's rate hike on September 18. The BOJ raised its policy rate to 1.25% from 1.0%, but the effect was short-lived as stronger-than-expected US PMI data and renewed inflation concerns drove higher US yields.

The widening US-Japan rate gap reignited the yen's decline, with markets increasingly seeing US rates and the dollar's direction as more important drivers of the yen exchange rate than Japan's monetary policy. The yen traded as low as 158.4 per dollar in New York trading on September 23, its weakest level in about three weeks.

U.S. Treasury yields surged to their highest level in 19 years, with the 10-year yield rising by 0.17 percentage point to 5.13%. The five-year yield also moved above 5%, driven by soft demand at a US Treasury auction of five-year notes. Markets rapidly raised the odds of another Federal Reserve rate increase, with interest-rate futures priced in about a 70% chance of an additional hike.