Dollar hits 40-year high against yen as odds of a Fed rate hike rise to 67%

TLDR

• The dollar reached its highest level in 40 years against the yen, reaching 162.84 yen on Wednesday.
• Rising US Treasury yields boosted dollar strength across major currencies.
• Markets are now pricing in a 67% chance of a rate hike by the Fed in September, up from 20.5% a month ago.
• The Japanese Ministry of Finance may be preparing to intervene again to support the yen.
• The Iranian conflict is also supporting demand for the dollar, with some analysts warning of a possible correction.

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The US dollar rose to its strongest level against the Japanese yen in 40 years on Wednesday, July 1, 2026, driven by rising Treasury yields and increasing bets on an interest rate hike from the Federal Reserve.

the dollar The price of the currency reached 162.84 yen during trading, a level that previously prompted Japan to intervene in currency markets. It was last traded at about 162.71 yen, up about 0.1% on the day.

Treasury yields fuel dollar demand

US Treasury yields rose sharply on Tuesday, with the 10-year yield rising as much as 9 basis points before retreating slightly. By Wednesday, it had risen 4 basis points to 4.465%, outpacing moves in European bond yields.

Analysts said there was no single clear reason for the Treasury selloff. Repositioning at the end of the month may have played a role.

This move added fuel to the already strong dollar. The euro fell 0.14% to $1.1404, while the British pound fell 0.2% to $1.3240. The dollar index settled at 101.31.

Traders now see a 67% chance of a rate hike by the Fed in September, according to the CME FedWatch tool. This compares to only 20.5% a month ago.

Data released overnight showed that US job openings rose to their highest level in two years in May. However, the hiring slowdown has affected how workers feel about the labor market. The closely watched non-farm payrolls report is scheduled for release on Thursday.

Japan is anticipating a window for action

The decline in the value of the yen puts pressure on the Japanese Ministry of Finance to act. Japan intervened in the currency markets about two months ago, and its chief currency diplomat said that this step was effective and received the support of some American officials.

Wells Fargo’s Chidu Narayanan said markets were “close to a possible move.” He pointed out that the ministry may need to intervene to protect its credibility, even if there is no fixed level that leads to an automatic response.

Traders see the US public holiday on Friday as a potential buying opportunity for Japan yenBecause low market liquidity can amplify the effect.

Japan may also wait for a weak US jobs report on Thursday, which could push the dollar lower on its own, HSBC’s Joey Chiu said. It also raised the possibility that officials could allow short selling positions to be built to make any future intervention more effective.

Meanwhile, geopolitical risks are also supporting the dollar. Commerzbank noted that the dollar is likely to remain steady while the Iranian conflict continues. However, the bank warned that once the situation stabilizes, expectations for a rate hike may not hold, opening the door to a decline in the dollar.

Federal Reserve Chairman Kevin Warsh is scheduled to speak at the European Central Bank’s Forum on Central Banking in Portugal later Wednesday. Analysts do not expect him to provide strong forward guidance, based on the approach he took in June.

The dollar’s strength reflects rising US yields and uncertainty in global markets, with Japan now watching closely for the right moment to intervene.