The U.S. dollar weakened against the yen on Wednesday, with the Japanese currency extending gains to a two-month low as market expectations for a Bank of Japan rate hike firmed and oil prices rose.
The dollar-yen exchange rate slipped to session lows near 156.20 yen in European trading, extending a decline from Tuesday’s North American close around 159.00 yen. The move followed comments from Bank of Japan Governor Kazuo Ueda, who reinforced expectations for a rate increase later this month, while board member Naoki Takata suggested the possibility of a larger-than-25-basis-point move. Earlier in the session, the dollar had briefly recovered to around 159 yen before easing as U.S. Treasury yields softened slightly, removing fundamental support for the greenback.
A preliminary review of the BOJ’s balance sheet indicated no intervention by Japanese authorities on Tuesday, according to Bloomberg, while FT Alphaville estimated that the U.S. Treasury may have sold roughly 500 million euros in an intervention operation in July. Price action in USD/JPY has remained smooth, without the sharp spikes typically associated with official intervention. The key support level remains at 155 yen, a level tested during the spring intervention and again more recently.
The market-implied path for BOJ tightening has steepened, with swap contracts now pricing slightly more than a 25-basis-point hike and a total of 49 basis points of tightening by year-end, up from 40 basis points at the end of last week and 22 basis points before the late-July intervention. The yen’s strength spilled over into broader G10 currencies, with the euro reaching session highs near $1.1615 as the dollar retreated.
Oil prices added to the dollar’s headwinds, with October WTI crude futures rising to a contract high near $93 per barrel amid ongoing Middle East hostilities. The conflict has complicated efforts to secure a diplomatic exit, with Iran’s stance limiting options for a face-saving resolution. While geopolitical risk typically supports the yen as a safe-haven asset, broader market sentiment remains cautious ahead of Friday’s U.S. jobs report, which is expected to influence near-term policy expectations.
In other G10 moves, the Canadian dollar strengthened by about 0.4% after the Bank of Canada’s hawkish hold, while the New Zealand dollar declined roughly 0.7% despite the Reserve Bank of New Zealand’s rate hike and guidance for another increase before year-end. The Australian dollar extended losses despite stronger-than-expected second-quarter GDP data, with AUD/USD trading near $0.7180 after briefly dipping to $0.7120.
Sterling met a key retracement target of its June-July rally, falling to a session low near $1.3475 before stabilizing slightly above $1.3480. A break below that level could extend losses toward the $1.3400-$1.3445 range.
In emerging markets, the Brazilian real led gains among Latin American currencies with a nearly 1% advance, while the South Korean won was the top performer in the broader EM complex. The Mexican peso consolidated within a narrow range, testing but failing to sustain gains above its 20-day moving average near 17.0125 pesos per dollar.
Commodities showed mixed performance, with gold extending gains to nearly $4,445 per ounce after briefly dipping below $4,283 earlier in the session. Silver recovered to session highs above $65.50 before testing its 20-day moving average near $66.25. U.S. Treasury yields steadied around 4.79% after five consecutive sessions of gains, while Japan’s 10-year yield eased five basis points to around 3% following a 30-year bond auction and the yen’s recovery.
U.S. equities stabilized after Tuesday’s losses, with the S&P 500 closing an upside gap created by the prior session’s low opening. Futures were narrowly mixed ahead of the jobs report, while Asian and European equities pared recent gains but avoided deeper declines.
