Dollar hits 19-month high as USDJPY nears 160 and Japan hints at intervention

• Japan is once again hinting at currency intervention as USDJPY rises towards 160.
• The yen is at the mercy of the Fed’s monetary policy.

The US dollar has reached a 19-month high on speculation that the Fed may raise rates by 50 basis points in one go in December. According to CME FedWatch, as of 10:00 GMT on 12 November, markets are pricing in about a 9% chance of such an outcome and a 91% probability of a standard 25-basis-point hike. This is a dramatic shift from a week earlier, when markets saw a 33% probability that rates would not be raised at all and a 67% chance of a typical increase. As a result, 10-year Treasury yields have started to rise again, reaching 5%.

To firm up expectations of a double hike in December, markets will need to see further hawkish rhetoric from FOMC officials and an acceleration in October producer prices, with data due on Friday, 13 November. Annual producer price inflation in September was 6.3%, compared with 3.7% for consumer prices. Without this double confirmation, the overheated dollar, which has gained around 1.5% in less than two days, may pull back. On the other hand, in the coming days, the greenback could be supported by a renewed rise in Brent crude, which halted its decline from Tuesday to Thursday amid rumours of an escalation of the conflict in the Middle East.

The rise in 10-year Treasury yields from 4.8% to 5% over the week lifted USDJPY to the psychologically significant level of 160, with the pair trading at 159.78 at 10:03 GMT on 12 November, fuelling talk of a resumption of intervention. Japan’s top currency diplomat Atsushi Mimura said on Thursday that markets should not forget what happened over the summer.

At the end of July, Tokyo and Washington carried out a coordinated currency intervention for the first time since 1998, following a surge in USDJPY to its highest levels since the 1980s. Over the summer, the authorities intervened in the currency market three times, spending a total of ¥15.4 trillion, equivalent to $96.4 billion.

The rise in USDJPY demonstrates that the yen is at the mercy of the Fed’s monetary policy. For the yen to strengthen, the Bank of Japan would need to tighten policy more quickly. Until that happens, the wide yield spread is driving the US dollar higher, leaving the yen as a funding currency in carry trades.

In this regard, dovish comments from Bank of Japan Policy Board members have added fuel to the USDJPY rally. Toichiro Asada also said on Thursday that further rate hikes would tighten financial conditions and hinder economic growth.

The strengthening of the US dollar has led to a fall in EURUSD to its lowest level since April 2025. The recent fall in oil prices and concerns about the eurozone economy have reduced the likelihood of further ECB rate rises in 2027, while the probability of a rate rise in December has fallen from 88% to 78%.

What to watch

Base case: in our view, as long as markets price in even a small chance of a 50 bp Fed hike in December and 10-year Treasury yields hold near 5%, the dollar remains supported against the yen and the euro.

Alternative case: if FOMC rhetoric does not turn more hawkish and producer prices do not accelerate, the overheated dollar could pull back.

Risk: a sustained move in USDJPY above 160 raises the likelihood of another Japanese intervention.

What to watch: US producer prices for October on 13 November at 13:30 GMT; FOMC’s Barr, Goolsbee, Daly, Schmid, Williams speak later on Thursday. See the economic calendar for times.

The FxPro Analyst Team