USD/JPY Slides on BoJ Rate Hike Expectations
The US dollar has lost ground against the Japanese yen, as expectations of another interest rate hike by the Bank of Japan (BoJ) have strengthened the yen. The pair has moved to a seven-month high, with markets pricing an 80% chance that the BoJ will raise rates by 0.25 percentage points at its upcoming meeting on September 17-18.
The BoJ's next policy meeting is seen as crucial, and recent comments from policymakers have reinforced expectations of further tightening to deal with inflation and a weaker currency. Higher Japanese rates could also weaken the carry trade, which has weighed on the yen for years by allowing investors to borrow cheaply in yen and move it into countries offering higher returns.
The intervention by Japan's Ministry of Finance in foreign exchange markets between July 30 and August 26 is still being felt, with a ¥15.4 trillion operation resulting in a significant increase in the yen's value. However, the latest intervention has been followed by a sustained recovery in the yen, helped by changing rate expectations and speculation that more Japanese capital could return home.