Yen Surges to Seven-Month High as BOJ Rate Hike Expectations Grow

The USD/JPY pair has seen a significant drop in value over the past week, with the yen strengthening to its strongest level since February. The pair traded above ¥160 last week but has since fallen to around ¥153, a decline of roughly 4%.

This move has carried the dollar-yen below the levels reached after Japan and the US jointly intervened in July, when Japanese authorities spent a record ¥15.4 trillion ($96.5 billion) supporting the currency.

Monetary-policy expectations are now doing more of the lifting, as traders unwind short yen positions accumulated while Japan offered significantly lower rates than other developed markets.

The Bank of Japan has revised its second-quarter economic growth higher to an annualized 1.4%, supported by stronger business investment and real wages rose 2.4% annually in July.

Swap markets now indicate a 98% probability that the Bank of Japan raises its policy rate by 25 basis points to 1.25% on September 18, with another increase to 1.5% fully priced by January.