Yen Surges on Rising Rate Hike Bets as Fed Hike Looms
The yen has rallied sharply, rising almost 1.5% to a high of 156.36 per dollar, its strongest in a month. Markets had been on alert for intervention from Tokyo, but analysts attribute the move to rising bets on Bank of Japan rate hikes.
Bank of Japan board member Hajime Takata's hawkish comments on Wednesday reintroduced the idea of an expedited rate hike trajectory. The market is taking his comments 'more seriously', according to Citi. A BOJ rate hike this month is nearly fully priced in by markets.
'(The) remarks are the strongest messaging we've heard from the board,' said Citi. The yen has struggled to find lasting support since a rare joint yen-buying intervention between the US and Japan on July 31, coming under pressure from still-wide interest rate differentials, fiscal worries, and a renewed spike in energy prices.
Chris Turner, global head of markets at ING, said a Federal Reserve rate hike in September would likely limit the dollar's fall against the yen. 'Any sustainable turn lower in USD/JPY now probably requires a much more hawkish Bank of Japan and some new initiatives to encourage domestic investment in Japan,' he said.