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

The Japanese yen hovered near the 160-per-dollar mark on Tuesday as US Treasury Secretary Scott Bessent urged the Bank of Japan to raise rates, while currency markets remained cautious amid heightened tensions in the Middle East. President Donald Trump vowed more strikes against Iran following a series of direct attacks, pushing oil prices above $91 a barrel and boosting Treasury yields.

The yen briefly traded at 159.81 per dollar but had slipped below the 160 level in the two sessions prior. Bessent's belief in a potential BOJ intervention for a stronger yen proved beneficial, as the currency rebounded to 160.00 per dollar. Although the chance of a BOJ rate hike in September is widely anticipated at 73%, experts argue that Japan's central bank must demonstrate more robust measures to break free from the 160 barrier.

Charu Chanana, a strategist at Saxo, noted that a September BOJ hike is expected, but additional hawkish actions are needed to sustainably move the yen away from 160. The US dollar showed signs of weakness, reversing gains from the previous day as investors digested the possibility of a Federal Reserve rate increase in September, following Fed Chairman Kevin Warsh's recent hawkish comments.

Sterling also gained slightly against the dollar after a 0.5% rise the previous month. The dollar index, which gauges the US currency against six peers, slipped to 99.37. Warsh, during his opening remarks at the Jackson Hole symposium, indicated that the Fed would need to work harder to curb inflation, increasing the likelihood of a rate hike during the upcoming meeting.

Traders assessed a 65% probability of a Fed hike for the same month, up from 41% a week prior, according to the CME FedWatch tool. Analyst Carol Kong from Commonwealth Bank of Australia suggested that the recent weakness in the USD might be linked to rising oil prices and elevated Treasury yields, which are failing to bolster the greenback.

Market focus will shift towards economic indicators released later in the week, offering clues about the Fed's potential decision to raise rates.