The yen strengthened and the dollar weakened rapidly as remarks by BOJ officials pointing to an early rate hike coincided with an announcement by the US Treasury, bringing a narrowing Japan-US interest rate gap into focus. The market has been moving while pricing in the possibility of a rate hike at the September policy meeting.
The yen strengthened and the dollar weakened rapidly in the foreign exchange market on the 3rd. At the start of trading in Tokyo, the yen had risen to the upper ¥158 range per dollar. It moved into the ¥157 range in the afternoon and briefly reached the ¥156.30 range in the evening, as expectations of a BOJ rate hike and movements in US interest rates drove the market.
One factor behind the yen’s rise was a speech by BOJ Policy Board member Takata Hajime (高田 創), who suggested that the central bank would respond flexibly to future rate hikes. Governor Ueda Kazuo (植田 和男) also said at a press conference that the BOJ would discuss the issue, including at its next meeting. The market interpreted both remarks as signaling that an early rate hike could be implemented or accelerated.
It also emerged that, at a meeting with US Treasury Secretary Scott Bessent on 30 August, there had been remarks expressing strong support for policies aimed at correcting the yen’s weakness. This further supported expectations of an early rate hike.
The market is increasingly pricing in a BOJ rate hike to approximately 1.25% at its September policy meeting. Gaitame.com Research Institute has also indicated that the implied probability had risen to nearly 99%. Expectations that the US Federal Reserve will not rush to raise rates have also spread, strengthening expectations of a narrowing Japan-US interest rate gap.