Fed Hike Speculation Dims Japanese Yen Rally

The Japanese Yen's recent rally is losing steam as speculation about an impending US Federal Reserve rate hike grows. The USD/JPY pair has been trading above 158.00, putting it on track to close above its 200-day average for the first time since September 2.

Japan's Finance Ministry has been intervening in currency markets by buying Yen, with a total of ¥15.4 trillion purchased between July 30 and August 26. This is more than the ¥11.7 trillion spent in April and May, but the strategy appears to be losing effectiveness as USD/JPY pushes above its previous ceiling.

The Bank of Japan raised interest rates to 1.25% on September 18, but this move has not had a significant impact on the Yen's value. The new rate is still lower than the US Federal Reserve's target range of 3.75-4.00%, which means that borrowing Yen at 1.25% to hold Dollars earning close to 4% remains a profitable strategy.