The yen hit a 40-year low as the BOJ failed to stop a hike

The dollar remained strong against most peers on Friday as a peace deal between the US and Iran hung in the balance, pinning the yen around two-year lows, which would push the Japanese currency to its weakest level in 40 years.

The dollar climbed as high as 161.8 yen late Thursday, closing at July 2024’s 161.96. Any higher would take it to its strongest level against the yen since 1986.

It was last at 161.3 on Friday, steady on the day, but traders were still bound when Japanese authorities stepped directly into markets to prop up the currency as they did in late April and early May.

The dollar has rallied this week, rising 1% against a basket of other major currencies to a 13-month high, largely thanks to Wednesday’s Federal Reserve meeting in which policymakers’ new quarterly forecasts showed nine out of 19 of them now expect a rate hike by the end of the year.

“In the near term, the dollar may enjoy the post-Fed euphoria for a little longer, with markets perhaps looking for a full two hikes by December on the first strong data print,” said Francesco Paysol, currency strategist at ING.

He added in a note that the holiday in the US meant there was “a low-liquidity backdrop, a window during which Japanese authorities have previously shown a preference to intervene”.

“(Dollar/yen) is already in the intervention zone… Lack of intervention today will leave room for speculators to move towards 162-163 given the supportive (dollar) environment.”

Weighing on the yen are Japanese interest rates, which are much lower than elsewhere, even after the Bank of Japan raised interest rates to a 31-year high this week.

Concerns over Japanese Prime Minister Sane Takaichi’s spending plans have also undermined investor confidence and fueled speculation that more intervention could follow.

The safe-haven US currency was also supported on Friday by fears about a US-Iran deal to end their war. Switzerland said US talks with Iranian negotiators would not take place on Friday.

The dollar also rose against its European peers earlier in the day, but it started to fade in Europe by mid-morning.

The euro hit a three-month low of $1.1418 before rebounding to trade flat at $1.1464.

The pound hit a more than two-month low of $1.3164 but was last at $1.323, up 0.2% on the day.

Sterling traders had plenty to digest, with Friday’s data showing stronger-than-expected retail sales for May, a different-than-expected budget deficit figure, and Labor Mayor Andy Burnham decisively winning a parliamentary seat in northern England that could clear the way to oust British Prime Minister Keir Starmer.

Elsewhere, the Swiss franc was softer, with the euro up 0.2% to 0.9238 francs, a day after the Swiss National Bank left its benchmark interest rate unchanged and reiterated its increased readiness to enter markets to stop the currency from rising.

The dollar rose to 0.8091 francs, its highest since November 2025, and was last up 0.15%.