Japanese Yen Rises as BoJ Hints at September Rate Hike
The Japanese Yen (JPY) strengthened against the US Dollar (USD) on Thursday, following hints from Japanese policymakers that interest rates will rise later this month. BoJ governor Kazuo Ueda said on Tuesday that the central bank will debate raising interest rates, including in September, with a focus on whether inflationary risks were heightening. This suggests a strong chance of a hike in September.
Overnight index swaps now more than fully price in a standard 25 basis points (bps) rate hike at the BoJ's September meeting, and only a very low likelihood of a 50 bps move is seen. The US August Nonfarm Payrolls (NFP) report will take center stage later on Friday, which could offer some clues about the US interest rate path.
Strategists at Scotiabank note that recent BoJ commentary has subtly shifted market expectations around the pace and size of future tightening. They highlight that the remarks 'hinted to the possibility of tightening in increments greater than the 25bpt adjustments typically delivered by central banks,' which would be 'even less expected' by the BoJ, given its current policy stance.
The USD/JPY pair remains capped under the 100-day SMA and has been pressing the lower edge of a recent range. Initial resistance is located at the Bollinger 20-period middle band around 159.18, ahead of the 100-day SMA at 159.99 and the upper Bollinger band near 160.38.