BOJ Rate Hike Bets Send Yen to 7-Month High Ahead of September Meeting

The Japanese yen has gained strength to around ¥155 per dollar, its strongest level in about seven months. Investors are increasing bets that the Bank of Japan could raise interest rates at its September 17-18 policy meeting.

This comes as oil prices approach $100 a barrel, creating competing forces for Japan's inflation and monetary policy outlook. The Bank of Japan currently guides its uncollateralized overnight call rate at around 1%, after raising it to that level in June.

The yen's appreciation changes the economics of borrowing in Japan and investing in higher-yielding overseas assets. A stronger yen increases the cost, in dollar terms, of repaying yen-funded positions, while a higher BOJ policy rate would narrow the interest-rate advantage that has supported those trades.