Yen Rally Fades Amid Growing Fed Hike Speculation

The Japanese Yen has given back most of its recent rally as talk of a potential Federal Reserve hike continues to grow. The USD/JPY pair has climbed above 158.00 and is now trading near its 200-day average, a level it hasn't seen since September 2.

Japan spent a record ¥15.4 trillion buying Yen from July 30 to August 26 in an effort to hold up the currency's value. However, this intervention has come at a cost, with Japan working for less time and spending more each time to maintain the currency's strength.

The Bank of Japan raised its interest rate to 1.25% on September 18, which is now in effect as Tokyo reopens after national holidays. The move comes as the Fed is at 3.75-4.00%, with Governor Barr arguing for further increases. Despite this, borrowing Yen at 1.25% still pays close to 4%, making it an attractive option.