Asian currencies gained on Tuesday, with the Japanese yen reaching its strongest level against the U.S. dollar since January, as market expectations for a Bank of Japan rate hike intensified. The yen briefly hit 152.89 earlier in the session before settling at 154.22, reflecting a broader trend of dollar weakness. Japan’s intervention efforts to bolster its currency—including a historic $97.18 billion intervention in late July—continued to support the yen’s ascent, though the currency later weakened slightly in intraday trading.
The U.S. dollar index declined 0.3% to 98.86, reversing Friday’s 0.3% gain, as the greenback struggled to maintain momentum. Canadian dollar strength also emerged, with the USD/CAD pair falling 0.3% to 1.3779, partly due to retaliatory tariffs Canada imposed on $27.6 billion worth of U.S. imports.
Japan’s economic resilience was underscored by a revised GDP growth rate of 1.4% in the April–June quarter, surpassing preliminary estimates of 1.1%. Meanwhile, U.S. nonfarm payrolls rose by 162,000 in August, far exceeding the 55,000 forecast, while the unemployment rate remained steady at 4.1%. Payroll revisions for June and July added 55,000 jobs, reinforcing labor market strength.
Market expectations for Federal Reserve and Bank of Japan policy shifts remained closely watched. The CME FedWatch tool suggested a 60% probability of a quarter-point rate hike by the Federal Open Market Committee later this month, while a 75% chance of a Bank of Japan rate increase was priced in for the same period. Analysts at JPMorgan, including Michael Feroli, noted that strong U.S. employment data would likely keep the Fed cautious on rate hikes until September’s inflation report.
U.S. President Donald Trump’s rhetoric against Canada also weighed on the dollar, particularly targeting Bombardier, a Canadian aerospace company whose U.S. revenue exceeds 50%. Trump’s statements, which accused Canada of blocking U.S. financial access and pressuring American businesses, added geopolitical tension to currency markets.
The yen’s rally and dollar weakness reflect diverging monetary policy expectations, with Japan’s central bank poised to tighten policy while the U.S. Federal Reserve remains cautious amid mixed economic signals.
