Yen Surges to Six-Month High on Rate Hike Expectations

The yen has strengthened to its highest level in six months against the dollar, reaching 153 in Tokyo foreign exchange trading. This is due to rising expectations for higher Japanese interest rates, with the Bank of Japan's monetary policy meeting on the 17th-18th expected to result in a 0.25 percentage point hike.

The view that Japanese and U.S. authorities will not tolerate yen weakness is also supporting yen buying. The record $100.1 billion in currency intervention by Japan between late July and August has contributed to this sentiment, with officials acknowledging its impact on foreign securities holdings.

Position unwinding by speculators and medium- to long-term investors who had bet on yen weakness is gaining momentum, as the yen carry trade becomes less profitable due to the narrowing interest rate differential. This could trigger capital outflows from risk assets globally if selling of overseas assets to buy back yen intensifies.

In the Tokyo stock market, export-related stocks such as Toyota Motor and Honda were sold off on concerns over deteriorating profitability, while retail and pharmaceutical stocks benefited from lower import costs due to the stronger yen. The Nikkei Stock Average opened 556 yen lower at 65,843 before briefly extending losses to more than 600 yen.