The yen rallied sharply on Thursday as markets increased bets that the Bank of Japan (BOJ) could accelerate its pace of interest rate hikes, pushing the Japanese currency to a one-month high against the US dollar.
The yen climbed nearly 1.5% to 156.36 per dollar, extending its 0.9% gain from Wednesday.
The move followed comments from BOJ board member Hajime Takata, who said the central bank should conduct rate hikes nimbly to counter mounting inflationary pressures rather than stick to a fixed six-month schedule.
Citi said Takata’s comments represented the strongest messaging from the BOJ board so far and had revived expectations of a faster rate-hike path.
“The remarks are the strongest messaging we’ve heard from the board and reintroduces the idea of an expedited rate hike trajectory,” Citi said in a client note, adding that markets were taking Takata’s comments “more seriously”.
Markets are now pricing in a BOJ rate hike this month at close to full probability.
The yen’s advance was broad-based, with the euro falling more than 1% to 181.62 yen.
The sharp move also prompted traders to consider whether Japanese authorities had intervened in the currency market. However, analysts said the yen’s rise appeared more orderly than the moves typically associated with intervention.
“I believe there’s little incentive for (the) Japanese government to intervene at this moment,” said Kazumasa Ishii, a strategist at UBS SuMi Trust Wealth Management, pointing to limited signs that the dollar-yen pair could reach a new multi-decade high in the near term.
The yen has struggled to sustain gains since a rare joint yen-buying intervention by Japan and the US on July 31, with wide interest rate differentials, fiscal concerns and higher energy prices weighing on the currency.
Chris Turner, global head of markets at ING, said expectations of a Federal Reserve rate hike in September could also limit further dollar weakness 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.
The dollar was broadly weaker, with the euro up 0.2% at US$1.161 while sterling rose 0.1% from a three-week low to US$1.35.
The dollar index, which tracks the US currency against a basket of major currencies, fell 0.4% to 99.25.
Markets are now turning their attention to Friday’s US nonfarm payrolls report, with economists expecting 56,000 new jobs in August after a surprise decline of 23,000 in July. The unemployment rate is expected to remain at 4.1%.
Markets are pricing in a 61% probability of a September Fed rate hike.
“Payrolls, I think, could come in solid again, given the supply shocks like the lower immigration and increased retirement,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
“That would give another boost to FOMC rate-hike pricing,” she added.
Reuters
