Yen hesitates near the intervention zone. Will the BoJ react?

The dollar held the Japanese yen near a two-week low as expectations rose Federal Reserve The US will keep interest rates higher for longer as the dollar and US Treasury yields rose overnight and markets await Fed Chairman Powell's speech.

Christopher Waller and John Williams were among the latest U.S. central bank officials to provide comments this week (Fed officials will enter a blackout period on October 21), in connection with the upcoming Fed meeting on October 31-November 1 on monetary policy.

Waller, who is one of the Fed's most hawkish members, has said he wants to "wait and see"whether the American economy will continue its good streak or weaken in the face of the current interest rate increases.

Dollar index near Wednesday's high

The dollar index, which measures the USD's strength against a basket of currencies, is holding near Wednesday's high of 106,63.

The US dollar received support from a sharp rise in US Treasury yields overnight as concerns about government debt issuance intensified amid the ongoing interest rate debate. The 10-year Treasury yield reached a new 16-year high and approached the 5% threshold.

Federal Reserve policymakers are signaling a pause in interest rate increases for the next several months as they wait for mixed signals, including strong economic data and signs of progress on still stubbornly high inflation, to subside.

Powell's speech in the spotlight

The market's attention will now turn to Fed Chairman Jerome Powell, who will speak today at 18 p.m. Polish time. I think it's highly likely that the Fed chairman will reinforce the more cautious comments made by Fed officials over the last week and a half.

The Japanese yen strengthened slightly to 149,77 per dollar, off Wednesday's two-week low of 149,94, but still near the 150 level that markets see as a potential trigger for Japanese authorities to intervene in the currency.

The risk of BoJ intervention is growing

The dollar/yen could rise even higher depending on whether U.S. bond yields continue to rise at a faster rate than those of their Japanese counterparts.

The yield on Japan's 10-year government bond rose to a decade high of 0,815% on Wednesday, prompting Bank of Japan to announce a $2 billion emergency bond purchase to maintain downward pressure on yields.

The consequence of this is that the risk of BOJ currency intervention remains high in my opinion. All the more so because higher interest rates for a longer period, relative resistance to economic growth in the US and fears of an extension of the conflict are some of the factors that may support the dollar.