Yen Soars on BoJ Hawkishness, US Rate Expectations Firm Up
The Japanese yen experienced a sharp rally this week as hawkish signals from the Bank of Japan and renewed intervention speculation weighed on its value. The USD/JPY pair fell over 1% at one point to around 158.20, while EUR/JPY dropped 1.37% to about 181.40 and GBP/JPY fell nearly 1% to approximately 214.43.
The yen's gains were broad-based, with BoJ board member Hajime Takata suggesting that a standard 25 basis point increase was not set in stone, paving the way for potential back-to-back hikes. Governor Kazuo Ueda reiterated the need for attention to upside risks to inflation, leading market pricing to shift decisively.
Meanwhile, the US rate expectations firmed up with 17 basis points of tightening priced for the September FOMC meeting and the 2-year Treasury yield reaching a year-to-date high of 4.41%. The Bank of Canada left its overnight rate unchanged at 2.25% but flagged multiple further increases if inflation remained a problem.
Oil prices stayed elevated due to renewed US-Iran hostilities, with WTI trading around $89.60 and Brent rising 1.0% to settle at $95.63. The ECB is expected to raise its deposit rate by 25 basis points next week in response to energy price pressures.