BOJ Rate Hike Expectations Fuel Yen's Rise

The Japanese yen has been rising in value due to increased expectations of a rate hike by the Bank of Japan (BOJ). According to Equiti, Japan's intervention efforts have already spent a significant amount, with $98.7 billion used to buy yen between July 30 and August 26. This has reduced Tokyo's foreign asset reserves to approximately $995 billion.

The BOJ's policy is now becoming the stronger argument for the yen's sustained move higher. Markets are pricing in a 25bp rate increase to 1.25% on September 18, with further tightening expected into 2027. The latest Reuters poll shows most economists expect the policy rate to reach at least 1.50% by March.

The BOJ's actions have given policymakers more room to move, with Japan's economy showing a 1.4% annualized expansion in the second quarter and real wages rising 2.4% year over year in July. This has changed the yen trade dynamics, making it less necessary for Tokyo to intervene every time the currency strengthens.

The technical outlook suggests that USD/JPY has lost its short-term trend, with the pair dropping down to the 153 area. The key area on the chart is now around 152-153, which meets the longer-term rising trendline from the 128 low.