Yen Surges as Japan Intervenes, Dollar Sinks on Warsh Dovishness

The dollar posted its steepest two-day decline since January. A combination of Japanese intervention, dovish signals from Federal Reserve Chair Kevin Warsh, and stronger eurozone growth data drove the move. USDJPY tumbled more than 3% over two sessions, the pair's sharpest drop in two years.

Tokyo stepped into the market after USDJPY broke above 159.50. Traders said the Ministry of Finance likely sold dollars in multiple rounds. The yen strengthened to 153.80 before settling near 154.20. The intervention coincided with a batch of options at that level maturing, which amplified the move. One Tokyo-based dealer called it "coordinated in effect if not in name," pointing to a simultaneous drop in U.S. Treasury yields.

Japan's move capitalized on a broader shift in dollar sentiment. Warsh, in his first public remarks since taking office, signaled he would let financial conditions do some of the work for the Fed. Markets read the stance as dovish relative to expectations. Fed funds futures now price less than a 30% chance of a September rate hike, down from about 50% two weeks ago. Two-year Treasury yields dropped 12 basis points to 3.85%, their lowest since early June.

Eurozone GDP grew at an annualized 1.2% in the second quarter, compared with 0.9% for the U.S., according to Eurostat data. It was the first time since the fourth quarter of 2025 that the eurozone outpaced the U.S. The euro rose 0.5% to $1.0920. Traders said the data pushed the probability of a September European Central Bank rate increase to roughly 40%, from 25% a week earlier.

The Bank of England left its benchmark rate unchanged at 4.5%. Governor Andrew Bailey said after the decision that the BOE would need to tighten if the Middle East conflict pushes energy prices higher. Sterling gained 0.3% to $1.2720.

"Tokyo saw a window open when Warsh turned out less hawkish than feared, and Washington did not object," a London-based macro hedge fund manager said.