The Japanese yen steadied near the closely watched 160-per-dollar level on Tuesday, while most Asian currencies traded within narrow ranges.
Currency markets remained cautious as renewed fighting between the United States and Iran pushed oil prices above $91 per barrel and sent global bond yields toward multi-year highs.
The USD/JPY pair traded around 159.81 after the yen weakened beyond 160 during each of the previous two sessions.
Yen’s 160 Level Returns to Market Focus
The 160 level has once again become a key area for foreign exchange markets.
The yen has already given back more than half of the gains generated by the large-scale intervention that began in late July.
That rare joint intervention by Japan and the United States provided only temporary support for the currency. Investors are therefore watching closely for signs that authorities could intervene again if the yen continues to weaken.
Bessent Supports Further Bank of Japan Rate Hikes
U.S. Treasury Secretary Scott Bessent said he expects the Japanese government and the Bank of Japan to take measures that could strengthen the yen.
Japanese broadcaster NHK reported that Bessent told Finance Minister Satsuki Katayama and BOJ Governor Kazuo Ueda that additional interest-rate increases were necessary.
His comments provided some support for the yen and reinforced expectations that monetary policy in Japan could tighten further.
Dollar Steady as Fed Rate Hike Expectations Rise
The U.S. dollar eased slightly on Tuesday as markets weighed a more hawkish outlook for American monetary policy against Bessent’s comments on Japan.
The U.S. Dollar Index remained broadly unchanged near 99.51.
Expectations for the Federal Reserve’s September meeting shifted sharply following hawkish comments from Fed Chair Kevin Warsh.
Bloomberg swaps pricing showed a 74% probability of a Fed rate hike this month, compared with 34% before Warsh’s remarks.
CME FedWatch placed the probability at around 65%, while DBS analysts estimated it at approximately 67%.
U.S. Jobs and Inflation Data Become Critical
Markets now see Warsh as significantly more hawkish, making upcoming U.S. economic data especially important.
The next nonfarm payrolls report could have a major influence on expectations for Federal Reserve policy.
Inflation figures due next week will provide another important signal before the Fed’s September 17 policy decision.
DBS noted that stronger-than-expected labor or inflation data could push rate-hike expectations significantly higher. Weaker data, meanwhile, could sharply reduce the probability of further tightening.
U.S.-Iran Tensions Push Oil Prices Higher
Geopolitical risks are adding another source of uncertainty for currency and bond markets.
Brent crude rose around 0.7% to approximately $91.10 per barrel after renewed military exchanges between the United States and Iran.
The latest developments marked the first direct strikes between the two countries in roughly a month.
Higher oil prices could increase global inflationary pressures and strengthen expectations that major central banks may need to keep monetary policy tighter for longer.
Chinese Yuan Little Changed After Stronger PMI
China’s yuan showed limited movement despite stronger-than-expected private manufacturing data.
The RatingDog China General Manufacturing PMI increased to 51.5 in August, compared with 50.9 in July and above the 51.0 market forecast.
The stronger private-sector reading contrasted with China’s official manufacturing PMI, which rose to 49.8 from 49.2 but remained below the 50 level separating expansion from contraction.
Both the USD/CNH and USD/CNY pairs traded around 6.72.
Indian Rupee Strengthens
The Indian rupee strengthened during Tuesday’s session, with the USD/INR pair falling around 0.21% to 94.964.
India’s economy expanded 7.8% year over year during the April-to-June quarter.
That exceeded DBS’s 7.5% forecast, although growth slowed from a revised 8.6% in the previous quarter.
The rupee had already finished Monday near a four-week high, supported partly by expectations for capital inflows linked to MSCI rebalancing.
DBS identified the 96.00 area as a potential near-term resistance level for USD/INR, while markets also remained alert to possible intervention from the Reserve Bank of India.
Other Asian Currencies Trade Mixed
Elsewhere in Asia, currency movements remained relatively limited.
The South Korean won weakened, with USD/KRW rising around 0.4% to 1,372.69.
The Singapore dollar moved only slightly, while the Australian dollar was broadly unchanged. The New Zealand dollar weakened to approximately $0.5908.
Central Bank Decisions Take Center Stage
Investor attention now turns to several upcoming central-bank decisions.
The Reserve Bank of New Zealand is expected to raise interest rates for a second consecutive meeting, while the Bank of Canada is widely expected to leave rates unchanged.
Markets will also closely monitor comments from BOJ Governor Kazuo Ueda and Bank of Japan Board Member Takata.
Any new signals regarding a possible September BOJ rate hike could have a significant impact on the yen and the broader Asian currency market.
