Rate hike expectations for the Federal Reserve have resurfaced on the back of the US August employment report, while expectations for a Bank of Japan rate hike have also kept the yen locked in a battle around ¥155 to the dollar.
In New York trading on the 4th, the yen fell for the first time in three days, with the dollar trading in the low ¥156 range. Strong US employment data revived expectations of a Federal Reserve rate hike, prompting renewed attention to factors that could weaken the yen. The 10-year Treasury yield, a benchmark for long-term interest rates, reached around 4.81% at one point, spurring market activity.
Nonfarm payrolls increased by 162,000 in August from the previous month, far exceeding the market forecast of a 53,000 increase and demonstrating the resilience of the labor market. Manufacturing employment also rose, while the unemployment rate was unchanged at 4.1%. Expectations for an early rate hike in the United States strengthened against the backdrop of improving employment, affecting the foreign exchange market as well.
Expectations regarding the pace of Bank of Japan rate hikes have increased, and views have spread that the Bank of Japan is highly likely to proceed with a rate hike at its September meeting. Following remarks by Policy Board member Takata (高田), speculation has also emerged that additional rate hikes could involve a flexible response extending beyond the conventional twice-a-year framework.
Going forward, the pace at which the Japan-US yield differential narrows and developments in the yen exchange rate are expected to be the focus. The merits of intervention and the effectiveness of coordinated intervention by Japan and the United States remain uncertain, while the wholesale price index and consumer price index due this week are expected to receive close attention as factors in the market’s assessment.