The yen rose as high as ¥154.04, breaking through the ¥155 level. Expectations for a rate hike at next week’s Bank of Japan monetary policy meeting have become the market’s focus. Against the backdrop of a sharp decline in foreign securities holdings in late August, the possibility of intervention funding is also being discussed.
The yen rose as high as ¥154.04 on 7 September, with its intraday gain briefly reaching 1.4%. The market is focused on whether the Bank of Japan will proceed with another consecutive rate hike at next week’s meeting, while the yen has broken through the psychologically significant ¥155 level. The yen has risen 3.3% in just 5 trading days since the start of September.
Lee Hardman of MUFG analyzed the yen’s rise as being driven by growing expectations of a BOJ rate hike and the repatriation of pension fund assets into domestic investments. He noted that the latest move could mark the beginning of a sustained yen appreciation trend rather than a short-term rebound.
The market is pricing in roughly a three-in-four probability of a Bank of Japan rate hike next week, and has also begun assessing the possibility of another consecutive rate hike in October. Fund managers said that consecutive rate hikes are becoming the baseline scenario, and the foreign exchange market is reflecting this risk.
The flow of intervention funding is also being considered as a factor behind the yen’s appreciation. The Ministry of Finance has confirmed that approximately ¥15.4 trillion was deployed for intervention during the month through 26 August, while outstanding holdings of foreign securities at the end of August fell by $87.8 billion from the previous month. The market is discussing the possibility that intervention was funded through sales of US Treasuries.