Markets price in 36 bps of Fed tightening by year-end, lifting the dollar as Japan’s yen weakens amid potential currency intervention.
The US dollar remains elevated against the Japanese yen, trading near levels last seen in 1986, as markets adjust to a more hawkish Federal Reserve outlook. The Fed’s latest dot plot projected a rate hike this year, defying expectations for no change, with 36 bps of tightening now priced in by December. Odds of a July hike stand at 34%, rising to 68% for September, though recent dovish repricing reflects softer oil prices and waning momentum in rate hike bets.
The yen’s decline has triggered sporadic spikes in USD/JPY, though these appear driven by profit-taking rather than direct intervention. The Bank of Japan recently raised its policy rate to 1.00% and paused bond tapering, maintaining its gradual normalization stance. With US inflation and jobs data ahead, the dollar may consolidate unless fresh catalysts emerge, while intervention risks linger near multi-decade highs.