Yen Surges as Traders Bet on Japanese Interest Rate Hikes

The yen has surged for the second consecutive day, reversing its month-long decline. The currency's gain is attributed to traders increasing bets on Japanese interest rate hikes and concerns about authorities intervening in the market to boost the yen.

Investors are focusing on factors that may support the struggling currency after weeks of questioning the effectiveness of interventions by Japan and the US. News from Japan's largest pension fund has sparked renewed speculation about positive fund flows.

The yen reached as high as 155.85 per dollar on Thursday, its best day since Tokyo and Washington entered the market to prop up the currency over a month ago. The Bank of Japan is expected to raise interest rates at its September 18 policy meeting.

Hideaki Minami, director of Mizuho Bank's foreign-exchange spot trading team, attributed the yen buying to speculation about an oversized rate hike. However, Chidu Narayanan, chief APAC strategist at Wells Fargo in Singapore, cautioned that a significant rally would require a surprisingly hawkish BOJ, fiscal prudence in Tokyo, and a weaker dollar.