Yen Rally Gives Back Half of Gains as BoJ Prepares to Hike Rates
The US dollar against the Japanese yen (USD/JPY) has been rising for three sessions, recovering more than half of its September drop. The Bank of Japan is expected to raise interest rates by a quarter-point on Friday, taking it to 1.25%, while the Federal Reserve's hike to 3.75-4.00% has not significantly impacted the gap between the two central banks' policy rates.
The market had priced in a higher rate hike for Japan, but the Bank of Japan's move is seen as a cautious step towards normalization. The yen's value has been falling despite the expected hike, and its rally from earlier this month has given back more than half of its gains.
Japan's national inflation figures for August are due on Thursday, with a forecasted 1.8% increase in consumer prices excluding fresh food. This is below the Bank of Japan's 2% target, which could lead to questions about the central bank's decision to raise rates.