Yen surges past 158 per dollar as Japan suspected of currency intervention: China factory activity shrinks in July
On Friday, the yen briefly surged past 158 against the U.S. dollar in Tokyo, prompting speculation that Japanese authorities had intervened in the currency market. China's factory activity unexpectedly shrank in July. Meanwhile, the U.S. and China are preparing for a visit by Chinese President Xi Jinping in September amid ongoing trade tensions.
The yen's surge came after it had fallen to its weakest level against the dollar in around 40 years. Market participants were caught off guard by the sudden move, which occurred a day after the U.S. Federal Reserve stood pat on its key interest rate and hours before the Bank of Japan was to announce the outcome of its two-day monetary policy meeting.
China's official manufacturing purchasing managers index (PMI) indicated a contraction in factory activity, increasing pressure on Beijing to roll out additional policy support to buttress growth. The PMI reading was the first contraction in five months.
In the U.S., Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer held a high-level video call with Chinese Vice Premier He Lifeng to prepare for Xi's visit. The call lasted more than an hour and focused on trade and investment issues. Bessent emphasized that the U.S. expects Beijing to fully meet its commitments on rare earths and U.S. agricultural products.
Japanese authorities are believed to have intervened in the currency market to prop up the yen, which has been under pressure due to concerns about Japan's fiscal health and the Bank of Japan's monetary policy.
The upcoming visit by Xi Jinping is seen as crucial for U.S.-China relations, which have been strained by trade disputes, technological competition, and geopolitical tensions. The U.S. has been pushing China to address issues such as intellectual property theft, market access, and unfair trade practices.
According to a source familiar with the talks between the U.S. and China, "over the past several months, China adopted or relied upon measures that create new risks for U.S. firms, restrict lawful commercial activity, and seek to deter lawful U.S. national security actions. This is problematic. The U.S. has raised these concerns repeatedly within their trade and economic channel and provided China time to reverse course, but China has continued to escalate and cause chaos. China's continued escalations will have consequences."
The U.S. has announced plans to ban Chinese robots and power inverters as national security threats. Additionally, the EU and China are heading toward a trade confrontation in the coming months. The EU's trade deficit with China has grown exponentially in recent years, reaching a record €1 billion a day in 2025. European Commissioner for Trade Maroš Šefčovič met with his Chinese counterpart, Wang Wentao, in Brussels on June 29 and set an October deadline for "tangible" results through further dialogue.
The Bank of Japan is expected to announce the outcome of its two-day monetary policy meeting later on Friday.
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