The yen's value against the dollar fell to its lowest level since 1986. With the U.S. economy showing a firmer-than-expected trend, the likelihood of a Federal Reserve (Fed) rate hike has grown, and analysts say the U.S.-Japan rate gap has fueled yen weakness.
According to Reuters on the 29th, the dollar-yen exchange rate rose intraday to 161.97 yen per dollar. A rise in the dollar-yen rate means a decline in the yen's value against the dollar. Reuters said the yen's value against the dollar is at its lowest level since 1986.
The dollar slipped slightly against major currencies but stayed near a 13-month high. The dollar index, which tracks the dollar against six major currencies, fell 0.17% to 101.19 on the day. However, it has risen 2.28% this month, increasing the likelihood of the biggest monthly gain since July 2025.
Expectations for U.S. economic growth and the possibility of Fed tightening are cited as the backdrop for dollar strength. Reuters said that with recent U.S. employment data coming in stronger than expected, investors are pricing in a greater chance of a Fed rate hike this year. The U.S. June jobs report due this week is also seen as a key driver for the foreign exchange market.
According to economists' forecasts compiled by Reuters, U.S. nonfarm payrolls for June are expected to increase by 110,000, with the jobless rate holding at 4.3%. If the labor market is stronger than expected, the Fed's hawkish stance could continue; conversely, if a slowdown signal is confirmed, market expectations for the monetary policy path could shift again.
The Bank of Japan (BOJ) recently raised its policy rate by 0.25 percentage points to 1.00%, but the U.S.-Japan rate gap remains wide. Analysts at LMAX Group said the BOJ's rate hike was insufficient to offset the gap with the United States.
Yen weakness could increase the burden on Japan's import prices and consumer prices. At the same time, for global investors, a strong dollar and a weak yen can feed into risk asset appetite, the possibility of Japanese authorities intervening in the FX market, and broader volatility across Asian currencies.
Tensions in the Middle East are also cited as a factor affecting the dollar's trajectory. Reuters reported that U.S. and Iranian technical teams are set to meet in Doha, Qatar, to discuss implementing a temporary peace agreement. Following recent clashes around the Strait of Hormuz, energy shipments and oil price movements are influencing the foreign exchange market as well.