Yen Strength Divides Wall Street on BOJ Rate Hike Outlook

The Japanese yen has strengthened to its strongest level since mid-February, reaching as high as 153.25 against the dollar on September 9, according to Bloomberg.

However, Wall Street is divided over whether expectations for a Bank of Japan (BOJ) rate hike can drive further gains in the currency.

JPMorgan and Wells Fargo argue that a substantial amount of tightening expectations has already been priced into the exchange rate, limiting both yen strength and the odds of additional rate increases. Meera Chandan, co-head of global FX strategy at JPMorgan, said Japanese authorities would want to avoid not only excessive yen weakness but also excessive strength.

In contrast, Bank of America and Manulife Investment Management believe that the yen could gain additional upward momentum if the BOJ accelerates rate hikes and signals further tightening. Alex Cohen, a foreign-exchange strategist at BofA, said faster BOJ rate hikes are a key precondition for further yen strength.