BOJ Rate Hike Expectations Fuel Yen Rally
The Japanese yen has been rising due to the combination of Japan's intervention and the Bank of Japan (BOJ) rate hike expectations. The country spent $98.7 billion buying yen between July 30 and August 26, using its reserves to defend the currency.
According to Reuters, Tokyo sold foreign securities, mainly U.S. Treasuries, to raise dollars needed to buy yen, reducing its Treasury holdings in the process.
The BOJ's policy is becoming a stronger argument for the yen's sustained move higher, as markets now price a 25bp rate increase to 1.25% on September 18 with expectations for further tightening into 2027.
Japan's economy has also given policymakers more room to move, with second-quarter GDP revised to a 1.4% annualised expansion and real wages rose 2.4% year over year in July.