Yen hangs near 160 amid BOJ rate-hike bets, dollar wobbles

The Japanese yen hovered near the 160 mark against the US dollar on Tuesday, bolstered by a rare combined effort from the United States and Japan, according to wire reports. Treasury Secretary Scott Bessent of the US government hinted at the possibility of a rate hike from the Bank of Japan (BOJ) in the near future, which seemed to support the yen.

This joint intervention by the US and Japan provided a brief respite for the yen, which had weakened past the 160 level in the preceding two days. Despite this, the market's betting on a BOJ rate hike is at 73%, but analysts suggest a more robust response from the BO is required to move the yen significantly away from the 160 threshold.

Analysts note that while a September hike is expected, the yen needs more than just one rate hike to strengthen sustainably. Meanwhile, the US dollar was under pressure, reversing gains from the previous day as investors grappled with the prospects of a rate hike from the Federal Reserve later in the month. The euro remained stable, and the British pound showed minor gains.

The dollar index, which tracks the US currency against six peers, slipped to 99.37. Fed Chair Kevin Warsh suggested that the Federal Reserve might need to take further action if inflation does not ease, hinting at another possible rate hike in September. Traders currently see a 65% chance of a Fed rate increase in the upcoming meeting, up from 41% the previous week.

Despite high oil prices and rising Treasury yields, the US dollar has not shown significant strength, possibly indicating that Chair Warsh's hawkish comments alone cannot restore the Fed's credibility. Economic data releases later this week will be crucial in determining the path of the Federal Reserve's monetary policy.