JPY Falls Back Below 160 Against the Dollar as Intervention Gains Fade

The yen fell below the 160-per-dollar level and extended its recent decline, with more than half of the gains from currency intervention now erased. According to Sina Finance, the dollar was supported after Fed Chair Kevin Warsh pledged to bring inflation back to the central bank's target level, and the yen at one point dropped 0.4% to 160.01 against the dollar. Traders are closely watching the yen's exchange rate to gauge when Japanese authorities may step in to support the currency. On July 31, the United States and Japan bought yen together for the first time since 1998, after which the yen briefly strengthened. Earlier this month, however, the yen failed to break above around 155 and then remained under pressure. Masahiko Loo, senior fixed-income strategist at State Street Investment Management, said levels above 160 are no longer just valuation levels but are becoming policy levels, and that Washington and Tokyo have effectively drawn a political red line around the mid-160 area. He said he does not rule out another round of currency intervention before the Bank of Japan raises rates, as early as September. Since the last joint U.S.-Japan intervention, hedge funds have cut their yen short bets by more than half. Market watchers said some investors are also starting to re-enter carry trades funded in yen.