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Japanese yen weakens as upbeat US PMI lifts dollar and yields

USD/JPY rose to about 158.18, while the US 10-year yield climbed to around 5.13%, its highest since 2007.

Reported · Written up by our desk · Major Pairs

The Japanese yen extended its decline against the US dollar on Wednesday, with USD/JPY moving to a three-week high around 158.18 and up about 0.5% on the day, as a hawkish Federal Reserve outlook supported the greenback, FXStreet reported.

FXStreet linked the move to stronger-than-expected US business activity. The preliminary S&P Global US Composite PMI rose to 58.4 in September from 56 in August, with Manufacturing PMI at 57 and Services PMI at 58.7, outcomes that reinforced expectations the Fed can stay on its tightening path after last week’s 25 basis point hike.

The improving outlook also pushed investors toward higher US rates. According to FXStreet, the CME FedWatch Tool showed traders pricing a 73% chance of another rate hike at the October meeting, and US Treasury yields rose to fresh multi-year highs, with the 10-year yield around 5.13% and the 2-year yield near 4.94%.

For Japan, FXStreet said the interest rate differential remained wide after the Bank of Japan raised its policy rate by 25 bps to 1.25% last week, but limited forward guidance and dissenting votes made the decision feel only slightly dovish. FXStreet also noted higher oil prices tied to Middle East risks as an additional headwind for the yen, and it flagged that traders may hesitate to push USD/JPY much higher as the pair approaches 160, where intervention risk could rise.

Latest closeUSD/JPY 158.21 ▲0.5%

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