The dollar-yen exchange rate reached the ¥160 range in August, driven by expectations that coordinated US-Japan intervention would continue and by growing expectations of higher US interest rates. The outlook for the September market, BOJ developments and key market focuses ahead of the US midterm elections in November are reviewed.
The dollar-yen exchange rate rose from around ¥155 at the beginning of August as the yen weakened, moving into the ¥160 range. Higher oil prices, rising US interest rates and policy developments in the US and China intensified pressure on the yen, while the hawkish stance taken by Fed Chair Warsh at the end of August heightened expectations of a rate hike in September.
The US-Japan finance ministers' meeting confirmed that coordinated intervention would continue, although some views suggested that the effect of intervention would be limited. There were also expectations that the announcement of fiscal consolidation measures could affect long-term interest rates, making the effectiveness of the measures a short-term focus.
While the market was seen as having almost fully priced in a BOJ rate hike in September, the outlook for US interest rates was identified as a factor that could determine the direction of the yen. Employment and inflation data are due around the September FOMC meeting, and the direction of the yen, whether stronger or weaker, was said to depend on the data.
The market is wary that any yen appreciation could be limited depending on the September rate decision and any additional signals, while developments ahead of the US midterm elections in November will also require attention. Coordinated US-Japan intervention is expected to remain a focus for the market.