Yen Squeezed as Japan's Central Bank Lags Global Hawkish Turn

The yen came under pressure on Tuesday as traders wagered that Japan's central bank would struggle to keep pace with other major economies, which are adopting a more hawkish stance.

Global markets have been pricing in rate hikes, and the Bank of Japan's recent interest rate increase was accompanied by two dovish dissents. This has created a wide gap between Japanese interest rates and those of its peers.

The yen slipped to 157.47 against the dollar in the Asia session, while the euro inched up to $1.1476 and sterling to $1.3383. However, the risk of intervention by Japan's central bank, as well as a holiday in the country, helped contain market moves.

Markets are pricing about a 30% chance that the BOJ hikes its benchmark short-term rate to 1.5% in October and a roughly 55% chance that the Federal Reserve will lift its funds rate window by 25 basis points to 4% to 4.25%.

Cryptocurrencies, which had rallied strongly on Monday, eased slightly, with Bitcoin down around 2% after reaching an 8-month high above $87,000.