• The Japanese yen slumped to its weakest level against the dollar since 1986, breaching 162 and fueling expectations that Tokyo may intervene.
  • China's stronger-than-expected factory data helped stabilize the yuan and supported regional risk sentiment.
  • The U.S. dollar remained firm ahead of Thursday's payrolls report and potential U.S.-Iran talks, with most Asian currencies trading in narrow ranges.

Yen Under Pressure

The Japanese yen extended its slide on Tuesday, falling to a fresh 40-year low of 162.20 against the U.S. dollar, according to traders. The move came amid persistent rate differentials between Japan and the U.S., with the Federal Reserve maintaining a hawkish stance while the Bank of Japan keeps ultra-loose policy. "The yen's weakness is getting a bit alarming," said a currency strategist at a major Japanese bank, speaking on condition of anonymity. "We're seeing increased chatter about intervention, but so far no concrete action." Japanese officials have reiterated their readiness to act but stopped short of issuing formal warnings.

Regional Divergence

In contrast, China's yuan firmed after data showed manufacturing activity expanded for the eighth straight month in June, with the official PMI coming in at 51.2, above the 50.8 forecast. The positive data helped steady regional sentiment, though most other Asian currencies moved in tight ranges as traders awaited U.S. payrolls data due Thursday. The dollar index held near 106.5 ahead of the release, with analysts expecting a 220,000 gain in nonfarm payrolls. "The market is positioning for a strong number, which would keep the Fed on track for rate hikes," said a senior economist at a Singapore-based bank.

Questions about potential U.S.-Iran talks added to uncertainty, though no formal announcements have been made.

Outlook

Traders are now on high alert for any signs of Japanese intervention, similar to the ¥9 trillion ($62 billion) operation in April. Without action, the yen could test 163. "If we break 163," said the currency strategist, "the probability of coordinated intervention rises sharply." Longer-term, yen weakness may persist until the Fed pivots or the BoJ signals a policy shift.

Correction: An earlier version of this article misstated the yen's fall as 40-year low; it is the weakest since 1986.