USD/JPY pushed toward 162.00 on Thursday, within striking distance of an all-time high, as 82% odds of a Federal Reserve rate hike this year drove the dollar to a 13-month peak.
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USD/JPY nears 162 all-time high as Fed rate hike bets fuel dollar rally
USD/JPY pushed toward 162.00 on Thursday, within striking distance of an all-time high, as 82% odds of a Federal Reserve rate hike this year drove the dollar to a 13-month peak.
"The BoJ's 25-basis-point hike to 1% was supposed to slow the yen's decline, but the market is focused on the Fed's next move," said James Okafor, central bank analyst at Edgen. "Until the US rate path peaks, intervention risk alone won't stop dollar-yen from testing new highs."
The dollar index held near 101.56 after touching 101.80 on Wednesday, its strongest in over a year. The euro slid to $1.1330, its lowest in several months, while the pound weakened 0.14% against the greenback this week. CME FedWatch data showed a 42.2% probability of at least two rate increases by year-end, a sharp reversal from the two cuts priced in before the Middle East conflict pushed oil prices higher and reignited inflation concerns.
A sustained break above 162.00 would put USD/JPY in uncharted territory, raising the risk of Japanese intervention and amplifying pressure on import-dependent sectors. The US PCE price index due at 12:30 GMT will provide the next catalyst — a hot reading could push the odds of a September hike above 50%, while a soft print may trigger a sharp squeeze on crowded dollar longs.
Japan's Ministry of Finance has so far refrained from intervening despite repeated warnings about excessive currency moves. The pair traded in a 161.74-161.79 range during Asian hours, approaching Monday's peak of 161.93. Immediate resistance sits at 161.95, with a close above that level opening the path toward 162.35.
The BoJ's June rate hike — approved 8-1 with only Prime Minister Takaichi appointee Toichiro Asada dissenting — brought the policy rate to 1%. The Summary of Opinions released Wednesday showed one board member arguing the rate must move "closer to the estimated neutral rate of around 2% as soon as possible." Reuters reported the BoJ is widely expected to raise rates again at its December meeting.
Yet the yen continues to weaken, showing the limits of BoJ action when the Fed is moving in the opposite direction. The last time the BoJ hiked rates into a hawkish Fed cycle was in 2006-2007, when USD/JPY rose from 110 to 124 over 18 months — a pattern that suggests the current move may have further to run even with intervention risks.
Morgan Stanley cautioned that the scope for further dollar gains is narrowing. "We prefer buying FX volatility, not the USD," the bank said, noting that crowded positioning and already-priced-in US exceptionalism make the risk-reward of outright dollar longs less attractive. For EUR/USD, Morgan Stanley sees short-term downside risks but argues that substantially higher dollar levels are becoming harder to justify.
The US PCE data due later Thursday will be the key test. A reading above the 2.3% year-over-year consensus would reinforce the hawkish Fed narrative and likely push USD/JPY through 162.00. A miss, however, could trigger a sharp reversal given the extent of short yen positioning.
This article is for informational purposes only and does not constitute investment advice.
