Yen drifts after intervention whirlwind; Iran optimism dents US dollar

Published Wed, Aug 5, 2026 · 09:38 PM

[LONDON] The Japanese yen steadied on Wednesday (Aug 5) after its most volatile few days in months after historic intervention, while the US dollar traded around six-week lows against other currencies as revived hopes of an end to the war in Iran blunted safe-haven demand.

The yen was steady at 157.55 per dollar, slightly stronger on the day, having fallen 0.4 per cent on Tuesday. On Monday, it hit as little as 155.2 per dollar, having traded at its weakest in 40 years, around 164 per dollar a week earlier.

US Treasury Secretary Scott Bessent on Tuesday said the US would do “whatever it takes” to support Japan’s efforts to stabilise the yen, echoing the words of former European Central Bank president Mario Draghi, who in 2012 pledged the same to preserve the euro during the regional debt crisis.

The dollar hit its lowest against the Japanese currency in three months after joint purchases on Friday by Tokyo and Washington – the first yen-buying intervention for US authorities since 1998 – and fell further on Monday.

Since then, it has strengthened against the yen, suggesting investors are sceptical about how effective intervention can be in the longer run.

“The phrase ‘sticking plaster’ does feel relatively appropriate in many instances. The reality is, I think it is nothing more than a containment exercise, unless you get one of three criteria,” CIBC Capital Markets head of G10 FX strategy Jeremy Stretch said.

He said that, broadly, the three criteria would be: a more aggressive approach to rate hikes from the Bank of Japan, markets pricing in a lower chance of rate increases from the Federal Reserve, and a lower oil price.

Bessent told public broadcaster NHK that he was sure Bank of Japan governor Kazuo Ueda would “do what is best” for the country’s economy, heightening market expectations that the BOJ could raise rates at its next policy meeting on Sep 17 to 18.

BNY said in a research note on Wednesday that its data showed investors held bullish positions in the yen, but these were far smaller than in the first half of this year.

“US support provides an opening for re-accumulation (of bullish positions), but we believe the market will agree with Bessent that any structural shift in holdings will depend on credible domestic policy changes,” Geoff Yu, BNY senior macro strategist for Europe, the Middle East, and Africa, said.

The dollar index, which tracks the US currency against six others, was 0.1 per cent lower at 99.71 after hitting a six-week low on Monday. With the oil price back around US$80 a barrel and US President Donald Trump saying his administration had “very good discussions” with Iran, investors had less incentive to buy the dollar as a safe haven.

Lower oil prices also prompted traders to attach a lower chance of the Federal Reserve raising interest rates in September, which also acted as a drag on the dollar. That probability was just below 60 per cent on Wednesday, from closer to 70 per cent at the start of the week. Kansas City Fed president Jeff Schmid said on Tuesday that some monetary policy tightening was needed to bring “too high” inflation back to the Fed’s 2 per cent target.

The euro rose 0.1 per cent to US$1.155, while the pound edged up 0.2 per cent to US$1.347.

In terms of macro events, the US monthly employment report on Friday could help shape expectations for near-term Fed policy. REUTERS