The Japanese yen moved sharply higher on Friday, ending a five-day losing streak and heading for its strongest daily performance against the U.S. dollar in almost three weeks.
The rebound came after Japanese officials revealed that U.S. President Donald Trump had directly raised concerns about the yen’s weakness during a recent meeting with Japanese Prime Minister Sanae Takaichi.
Meanwhile, the stronger yen pressured the U.S. dollar, which paused after four consecutive sessions of gains had pushed it close to a two-month high.
At 16:00 ET (20:00 GMT), the U.S. Dollar Index, which measures the greenback against six major currencies, was down 0.3% at 100.97. The index had reached its highest level since July 28 during Thursday’s session.
Yen Rebounds After Trump Raises Concerns
The Japanese yen strengthened to as much as 156.94 per dollar on Friday before trading around 157.22 later in the session.
Despite the rebound, the yen remained on course for a weekly decline of around 0.2%.
The currency had come under pressure after the Bank of Japan’s latest interest rate increase failed to meet expectations for a more aggressive tightening stance.
However, market sentiment shifted on Friday after Japanese Finance Minister Satsuki Katayama revealed that Trump had raised concerns about the yen’s decline during his September 22 meeting with Prime Minister Takaichi in New York.
According to Katayama, Takaichi told Trump that an undervalued yen was problematic.
Japanese authorities also remain in close contact with U.S. Treasury Secretary Scott Bessent as officials monitor excessive currency-market volatility.
The discussions follow previous efforts by Japanese and U.S. finance officials to address the yen’s depreciation.
According to Kyodo News, authorities have focused closely on the currency’s weakness after the yen previously fell beyond 161.80 per dollar, close to levels not seen in decades.
That sharp decline had prompted approximately $35 billion in coordinated spot-market intervention on July 31.
Dollar Still Heads for Strong Weekly Gain
Despite Friday’s decline, the U.S. Dollar Index remained almost 1% higher for the week and was heading toward a second consecutive weekly advance.
Several factors have supported the greenback, including concerns about energy-driven inflation, rising U.S. Treasury yields, stronger-than-expected economic data and increasingly hawkish expectations for Federal Reserve monetary policy.
The sharp sell-off in U.S. government bonds has been particularly important for currency markets.
Longer-term Treasury yields moved to multi-year highs during the week, increasing volatility across financial markets and adding pressure to Wall Street.
The benchmark U.S. 10-year Treasury yield climbed to its highest level since June 2007, while the 30-year yield reached levels not seen since June 2004.
Fed Rate Expectations Support the Dollar
Bond markets initially reacted positively to the Federal Reserve’s latest interest rate increase, viewing the decision as evidence that policymakers remained committed to fighting inflation.
However, subsequent hawkish comments from Fed officials and stronger U.S. business activity data have strengthened expectations that monetary tightening may continue.
Market participants have consequently increased their expectations for another quarter-point rate increase in October, according to the CME FedWatch tool.
Higher interest rates and Treasury yields can make dollar-denominated assets more attractive to global investors, which often supports the U.S. currency.
Richard Reyle, chief investment officer at Questar Capital Partners, noted that the 2-year Treasury yield remains well above the federal funds rate.
According to Reyle, this suggests markets may still be pricing in several additional interest rate increases rather than viewing September’s hike as an isolated move.
He added that the 2-year Treasury yield could provide investors with an important indication of where Federal Reserve policy may be heading.
Euro and Sterling Remain Under Pressure
Elsewhere in currency markets, the euro gained around 0.2% to $1.1396 on Friday.
However, EUR/USD remained approximately 0.8% lower for the week and was heading toward its third consecutive weekly decline.
Widening interest-rate differentials between the United States and Europe, combined with continued concerns about European energy storage levels, have weighed on sentiment toward the euro.
The British pound also gained around 0.2% to $1.3248 during Friday’s session.
Nevertheless, sterling remained about 1.1% lower for the week and was on track for a fifth consecutive weekly decline.
UK consumer confidence showed a modest improvement in September compared with August, although overall sentiment remained negative.
José Torres, senior economist at Interactive Brokers, noted that UK consumer confidence had improved for a third straight month.
However, he also highlighted persistent inflation and higher energy costs as potential obstacles to a sustained improvement in household sentiment.
Currency Markets Focus on Yen, Dollar and Interest Rates
The yen’s sharp rebound has brought currency intervention and exchange-rate policy back into focus.
Trump’s concerns over yen weakness, combined with continued communication between Japanese and U.S. officials, could keep USD/JPY volatility elevated.
At the same time, the broader direction of the dollar is likely to remain closely linked to U.S. Treasury yields, inflation expectations and the Federal Reserve’s interest-rate outlook.
With bond yields near multi-year highs and markets considering the possibility of further Fed tightening, interest-rate expectations remain a major driver across global foreign exchange markets.
