Expectations for another BOJ rate hike have risen sharply, prompting speculation that the central bank could raise rates in September or October. Meanwhile, USD/JPY has once again approached ¥160, and several factors have been cited as making the yen's downtrend difficult to halt.
Expectations for another BOJ rate hike have risen sharply, with a hike at the September Monetary Policy Meeting widely anticipated. However, Kimura Taro (木村 太郎) points out that the likelihood of a September hike is not high. The decision in September is expected to depend on US economic data, and the hike could be deferred until October.
Although the probability of a September rate hike has risen in the market, the direction of the yen's depreciation or appreciation is said to depend on developments in the Japan-US interest rate differential and the FOMC. The shift in market perceptions following the coordinated Japan-US yen-buying intervention at the end of July is cited as a factor behind the yen's depreciation.
The expansion of Japanese companies' foreign direct investment is cited as a structural factor supporting the yen's depreciation, with increased overseas investment sustaining pressure to sell the yen. Attention is expected to focus on the policies of the Takaichi administration as it seeks to raise potential growth through a balance of fiscal and monetary policy.
A softening in US economic data or waning expectations of further rate hikes by the Federal Reserve is likely to contribute to a shift in USD/JPY toward yen appreciation. However, yen depreciation trends are said to have limits to how far they can be reversed through foreign-exchange intervention alone.