Key Takeaways

• USD/JPY hit 161.8, closing in on 1986 levels, with traders watching for possible Japanese intervention.
• The dollar index gained 1% this week to a 13-month high after the Fed flagged a likely rate hike by year-end.
• Suspended U.S.-Iran talks added safe-haven demand for the dollar.
• The euro and pound both touched multi-month lows before paring losses.
• The Swiss franc weakened despite the SNB holding rates and signaling readiness to intervene.

The dollar held firm against most peers on Friday, as a peace deal between the U.S. and Iran hung in the balance, pinning the yen around a two-year low — a break past which would take the Japanese currency to its weakest in 40 years.

The dollar climbed as high as 161.8 yen late Thursday, closing in on July 2024’s 161.96 high. Any move higher would take it to its strongest against the yen since 1986. It was last at 161.3 on Friday, steady on the day, but traders remained braced for the possibility that Japanese authorities could intervene directly, as they did in late April and early May.

Hawkish Fed lifts the dollar to a 13-month high

The dollar has surged this week, rising 1% against a basket of major currencies to a 13-month high, largely on the back of Wednesday’s Federal Reserve meeting, where new quarterly projections showed nine of 19 policymakers now anticipate a rate hike by year-end.

“In the near term, the dollar may enjoy post-Fed enthusiasm for a bit longer, with markets probably keen to fully price two hikes by December at the first strong data print,” said Francesco Pesole, currency strategist at ING. He added that the U.S. holiday meant a lower-liquidity backdrop — a window during which Japanese authorities have previously shown a preference to intervene.

“Dollar/yen is already deep into intervention territory,” Pesole said, adding that a lack of intervention would leave room for speculators to push the pair toward 162-163 given the supportive dollar environment.

Yen pressured by rate gap, fiscal concerns

Weighing on the yen are Japanese interest rates, which remain far below those elsewhere even after the Bank of Japan raised rates to a 31-year high this week. Concerns around the spending plans of Japanese Prime Minister Sanae Takaichi have also undermined investor confidence and fueled speculation that further intervention could follow.

The safe-haven dollar also drew support Friday from jitters over the U.S.-Iran deal to end their war, after Switzerland said talks between U.S. and Iranian negotiators would not take place Friday as planned.

Euro, pound dip then recover; franc softens

The dollar also gained against European peers earlier in the day, though those gains faded by mid-morning in Europe. The euro hit a three-month low of $1.1418 before rebounding to trade flat at $1.1464.

The pound touched an over two-month low of $1.3164 but was last at $1.323, up 0.2% on the day. Sterling traders had plenty to digest Friday: stronger-than-expected May retail sales, a larger-than-expected budget deficit, and Labour MP Andy Burnham’s decisive win of a parliamentary seat in northern England, which could clear a path toward ousting 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 rate unchanged and reiterated its readiness to intervene in markets to curb currency appreciation. The dollar climbed to 0.8091 francs, its highest since November 2025, last up 0.15%.