Bank of Japan's Tightening Squeeze Sends Yen Soaring Against Dollar
The Japanese yen has been on a wild ride lately, falling by around 5.3% from its yearly high before recovering and then reversing again in just one day, with a move exceeding 1.65%. The Bank of Japan's divergence from the Federal Reserve is behind this currency's resilience, as Tokyo edges towards tighter policy while the Fed focuses on inflation over growth.
Recently, there were reports of an overnight rate check by the Bank of Japan, which typically precedes intervention in the currency market. This was followed by commentary from a board member calling for data-dependent and nimble policy, increasing the likelihood of a rate hike this month.
The Federal Reserve's priorities are pulling U.S. rate expectations in the opposite direction. After its Jackson Hole commentary, it became clear that the Fed is fixated on inflation, making the labor market the variable most likely to disrupt current pricing. The upcoming nonfarm payrolls release will be a key test of this expectation.
Boutros notes that 'a nonfarm payrolls report tomorrow could be the nail in the coffin that either solidifies this rate hike this month or eases those expectations back'.