The dollar-yen rate surged from the ¥164 range to the ¥152 range in about 40 days, making the yen's appreciation increasingly pronounced. Expectations of an additional Bank of Japan rate hike and coordinated intervention by Japan and the United States are behind the move, while concern over an unwinding of yen carry trades has become the market's focus.
The yen, which had plunged to ¥164 per dollar, its weakest level in about 40 years, surged to the ¥152 range in just over 40 days. During trading hours, it fell to ¥152.88, hitting a roughly seven-month low on the 8th. Market concerns are growing that the yen's rapid appreciation could trigger an unwinding of yen carry trades.
The immediate driver of the latest surge was expectations of an additional Bank of Japan rate hike. The Bank's monetary policy meeting will be held on the 17th and 18th, and views are spreading that it will raise the current 0.1% policy rate by 0.25% to 1.25%. The July increase in real wages and an upward revision to second-quarter growth were also viewed by the market as conditions supporting tighter policy.
Coordinated intervention in the foreign exchange markets by Japan and the United States also supported the yen's appreciation. Japan intervened between 30 July and 26 August, investing approximately ¥15.4 trillion to sell dollars and buy yen. The coordinated Japan-U.S. intervention was the first since 2011. The finance minister emphasized that the policy stances of both countries had not changed.
If the unwinding of yen carry trades gathers pace, the Korean market could also be affected, with the risk of increased downward pressure from a weaker won and on Korean equities. On the other hand, some analysts believe Korean export-related companies could benefit, as yen appreciation would raise Japanese companies' dollar-denominated prices and weaken their price competitiveness.