Photo/Illutration Banknotes of Japanese yen and U.S. dollar are seen in this illustration picture taken on Sept. 23, 2022. (Reuters)

NEW YORK/LONDON--The dollar touched the closely watched 150 level against the yen on Friday, before falling back again, as investors positioned for the Federal Reserve to hold rates higher for longer.

A move above 150 is seen in the market as having the potential to spur an intervention by Japanese monetary officials concerned about the currency weakening too far.

It reached 150.165 on Oct. 3 before quickly dropping back to 147.3, but market participants say it is not clear whether the move resulted from an intervention by the Ministry of Finance (MOF) or was caused by market nerves and trading stop losses or other automated trades being triggered.

"The market is obviously very mindful that the 150 threshold... is a potential precursor for the uncertainty of having the MOF on the other side of it," said Jeremy Stretch, head of G10 currency strategy at CIBC Capital Markets.

Analysts say that the speed and context of the move and how far it goes above 150 will likely influence whether the Ministry of Finance steps in.

The dollar was last up 0.11% on the day against the Japanese currency at 149.85 yen. The dollar rally has stalled since the index hit a 10-month high on Oct. 3 even as benchmark 10-year Treasury yields continue to hit fresh 16-year highs.

Adam Button, chief currency analyst at ForexLive, said that the potential for MOF intervention was limiting dollar gains. “I think the dollar would otherwise be stronger if not for the threat of intervention from Japanese monetary officials,” he said.

“Given fixed income and equities, the dollar should be stronger than it is this week, and I think it’s just a matter of time until it materializes.”

Some analysts also note that the number of investors holding dollars has become crowded, which may be holding back further rallies.

"The greenback continues to draw smaller benefits from strong U.S. data and high rate advantage than it should, likely due to its overbought status, but upside risks remain predominant," ING analyst Francesco Pesole said in a note on Friday.

The index was last at 106.14, down 0.06% on the day. The euro rose 0.04% to $1.0593.
The dollar eased on Thursday after Fed Chair Jerome Powell said rising market interest rates could reduce the need for action by the central bank.

The odds of a Fed hike in December have dropped to 24%, from 39% before Powell’s comments, while a November pause is seen as a sure thing, according to the CME Group’s Fed Watch Tool.

But the U.S. central bank is not expected to begin cutting rates until June.

Investors are also watching the Middle East for any indications of an escalation in the war between Israel and Hamas.

The Swiss franc hit an almost six-week high against the greenback earlier on Friday, before falling back to last trade at 0.8917. The Swiss currency has been a popular safe haven as a result of rising geopolitical tensions.

The Swissie also hit its highest against the euro since 2015, when the Swiss National Bank scrapped its peg between the two currencies.

Elsewhere, the pound fell to a five-month low against the euro after a series of data releases showed a collapse in British consumer confidence in October following weak retail sales the month before. Sterling was last up 0.14% against the dollar at $1.2158.

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