JPY Strengthens on BoJ Hike Prospects and USD Softens

The Japanese Yen has strengthened against the US Dollar as market expectations of a potential Bank of Japan rate increase rise. The recent inflation data from Japan showed stronger-than-anticipated price pressures, which reinforced expectations that the BoJ could move ahead with another interest rate hike as early as September.

According to Scotiabank strategists, the latest inflation report has added marginally to conviction that the BoJ will tighten next month. They noted that 20bps or hikes are reflected in swaps, and that the price data helped lift the JPY to a 0.4% rise against the soft USD on the day.

The pullback in USD/JPY has also been driven by weakness in the U.S. Dollar, which faced renewed selling after fresh fiscal signals from Washington. The Treasury Department committed to at least doubling its repurchases of longer-maturity government bonds, with a potential buyback program exceeding $4 billion.