Yen Gains Strength on Intervention Risk and Hawkish BoJ Signals
The Japanese yen has been gaining strength against the US dollar due to increased expectations of intervention by policymakers. President Trump's recent comments about yen weakness have put pressure on Japan to take action and cap further upside for USD/JPY. The pair has been trading in a narrow range between 155.00 and 160.00 since joint US-Japan intervention at the end of July.
The yen is also benefiting from growing expectations of faster rate hikes by the Bank of Japan (BoJ). The 2-year Japanese government bond yield has risen to within touching distance of 2.00% overnight, with market participants now expecting 3-4 more hikes in the year ahead. The probability of a back-to-back hike as soon as next month is at around a 50:50 call.
The latest BoJ minutes from the July meeting sent a hawkish signal, backing up the shift to a faster pace of tightening. This has been reflected in the jump in JGB yields and the increased expectations for rate hikes.