The US dollar has once again flirted dangerously close to the significant 150-level against the Japanese yen (USD/JPY) on Friday, buoyed by a surge in U.S. 10-year Treasury yields, breaching the 5% mark for the first time in 16 years. This boost came after Federal Reserve Chair Jerome Powell hinted at the possibility of further rate hikes.
The benchmark 10-year Treasury yield witnessed a remarkable rise of 30 basis points this week, marking its most substantial weekly increase since April 2022. This surge in yields was primarily driven by Powell’s remarks, which stirred speculation in the market about the potential for more rate hikes in the near future.
Despite the ongoing geopolitical tensions in the Middle East, which typically prompt investors to seek refuge in safe-haven assets like gold and the Swiss franc, the focus in the trading sphere has predominantly centred around the outlook for interest rates.
Interestingly, the surge in Treasury yields didn’t translate into significant gains for the dollar this week. The greenback made only marginal advancements while teetering on the edge of the crucial 150 level against the yen. This level is where market participants anticipate possible intervention by Japan’s Ministry of Finance (MOF) to stabilise their currency.
Speculators have significantly increased their bullish dollar positions against other G10 currencies this month, reaching the highest levels in a year. Simultaneously, the dollar/yen pair, which briefly rose to 150.00 on Friday, remained relatively stable at 149.930. This pair tends to closely track 10-year U.S. yields, indicating the market’s sensitivity to interest rate movements.
Shoki Omori, chief Japan desk strategist at Mizuho Securities in Tokyo, emphasized the prevailing belief that the Ministry of Finance would likely intervene at the 150-level. He stated, “There is a mindset that the Ministry of Finance will intervene at 150, and that belief has become really sticky.” Omori also pointed out the potential for a significant upward move in the dollar-yen pair, with the next key level being 155 per dollar, a high unseen since the mid-1990s.
