The Japanese yen remained close to its weakest level in nearly four decades on Friday as a surging U.S. dollar and expectations of higher American interest rates overshadowed the Bank of Japan’s latest rate increase.
The dollar traded around 161.3 yen after touching 161.8 yen overnight, approaching the 161.96 level reached in July 2024. A move beyond that mark would push the Japanese currency to its weakest level against the dollar since 1986.
The yen’s weakness comes despite the Bank of Japan raising interest rates this week to their highest level in 31 years, a move that failed to convince investors that Japan could narrow the significant interest rate gap with the United States.
Currency traders remained alert to the possibility of intervention by Japanese authorities, who stepped into foreign exchange markets in 2024 to support the yen after sharp declines.
Analysts said the combination of higher U.S. yields and persistent expectations of further Federal Reserve tightening continued to favour the dollar.
The greenback has gained about one percent this week against a basket of major currencies, reaching its highest level in more than a year after the Federal Reserve signalled that additional interest rate increases could still be required.
Updated projections released after the Fed’s latest policy meeting showed that nine of the central bank’s 19 policymakers expect at least one rate increase before the end of the year.
Investors have since increased bets that U.S. borrowing costs will rise further, boosting demand for dollar-denominated assets.
“In the near term, the dollar may enjoy post-Fed enthusiasm for a bit longer,” said Francesco Pesole, currency strategist at ING.
He noted that reduced market liquidity due to a U.S. holiday could create conditions under which Japanese authorities might choose to intervene.
“Dollar-yen is already deep into intervention territory,” Pesole said, adding that a lack of official action could encourage speculators to push the exchange rate even higher.
The yen has faced sustained pressure because Japanese interest rates remain far below those in other major economies, even after the latest increase by the Bank of Japan.
Investors have also expressed concern about the fiscal policies of Japanese Prime Minister Sanae Takaichi, with growing government spending plans raising questions about Japan’s long-term fiscal outlook.
At the same time, uncertainty surrounding geopolitical developments supported the dollar’s appeal as a safe-haven currency.
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Markets were monitoring developments related to efforts to secure a lasting peace agreement between the United States and Iran after planned talks in Switzerland were cancelled.
The stronger dollar also weighed on other major currencies earlier in the session.
The euro fell to a three-month low of US$1.1418 before recovering to trade near $1.1464, while the British pound touched its weakest level in more than two months before rebounding later in the day.
Sterling traders were digesting a mix of economic and political developments, including stronger-than-expected retail sales data, a wider budget deficit and political shifts within Britain’s ruling Labour Party.
Meanwhile, the Swiss franc weakened after the Swiss National Bank left interest rates unchanged and reiterated its willingness to intervene in currency markets to prevent excessive appreciation.
The dollar rose to its strongest level against the franc since November 2025, reflecting broad-based demand for the U.S. currency.
Market participants said attention would remain focused on upcoming economic data and signals from major central banks, with expectations for U.S. interest rates continuing to play a decisive role in global currency markets.
For Japan, the immediate challenge remains stabilising the yen without undermining economic recovery, as policymakers weigh whether further intervention may be needed if the currency’s decline continues.
