BOJ Rate Hike Fuels Yen Rally as Intervention Fades

The Japanese yen has been rising in recent weeks, and one key factor behind this trend is the Bank of Japan's (BOJ) decision to raise interest rates. The BOJ policy rate is now expected to increase to 1.25% on September 18, with further tightening likely into 2027.

This move has been accompanied by a significant reduction in foreign assets, particularly U.S. Treasuries, which Japan has used to fund its currency interventions. The country's reserves have fallen to $995 billion, and the BOJ's willingness to hike interest rates has given policymakers more room to maneuver.

As a result, the yen no longer needs Tokyo to intervene every time it strengthens. In fact, the BOJ's policy is now providing a stronger argument for the yen's sustained move higher. The combination of intervention and rate hikes is giving the currency a boost that may be more sustainable than previously thought.