Yen Rises as BoJ Hawkish Expectations Boost Currency

The USD/JPY pair has dropped to its lowest level in six months as expectations of a hawkish Bank of Japan monetary policy have increased.

Traders are unwinding short yen positions from the carry trade, which has contributed to the yen's strength. The Japanese authorities' $96.5 billion support for the currency from July 30 to August 26 also played a role in its gains.

Data released overnight showed Japan's Q2 GDP was revised higher to an annualised 1.4%, driven by stronger business investment and rising real wages.

The market is pricing in a high probability of the BoJ hiking rates next week, which could further support the yen and cap its losses against the dollar.