The Japanese yen has risen more than 1.7% against the US dollar, reaching 155.85, its highest level against the dollar in a month, as investors increase bets that the Bank of Japan could raise interest rates.
The move followed a 0.9% gain the previous day and came as global markets remained unsettled after a sharp government bond sell-off linked to concerns that higher oil prices could fuel inflation.
Why traders are reassessing Japan’s next move
Remarks by Bank of Japan policymaker Hajime Takata that the central bank needs to move more “nimbly” appeared to strengthen expectations of an earlier rate increase. Citi said the comments were the strongest messaging it had heard from the board and had revived the possibility of a faster rate-hike path.
Markets now put the probability of a rate rise at the Bank of Japan’s next meeting at 77%. The central bank has raised rates gradually over the past two years after Japan emerged from decades of deflation, but left its main policy rate unchanged at 1% in July. For additional context, see “Federal Reserve keeps rates steady amid renewed inflation pressure”.
Officials remain alert as bond markets stay volatile
Japan’s vice-finance minister for international affairs, Atsushi Mimura, said he was “neither satisfied nor reassured” by the latest market moves and that policymakers remained on heightened alert. Financial adviser deVere chief executive Nigel Green said the speed of the yen’s rise reflected unusually unsettled markets.
The wider bond-market sell-off intensified after US Federal Reserve chair Kevin Warsh said that, if inflation did not move towards the Fed’s 2% target, the central bank would have “more to do”. The sell-off appeared to ease on Thursday, with 10-year UK government bond yields at about 5.1% in morning trading after reaching nearly 5.3% earlier in the week, their highest level since 2008. A related part of this story is covered in “White House again threatens Lisa Cook’s Federal Reserve position”.
What happens next
The Bank of Japan’s next meeting starts on 17 September, when investors will be watching for a decision on whether to raise rates.
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