Against a backdrop of hawkish comments from the Bank of Japan and U.S. policy pressure, the yen strengthened rapidly in the Tokyo market on the 3rd, rising as high as 156.5 to the dollar and moving more than ¥3 from the previous day.
On the 3rd, the yen rose as high as 156.5 to the dollar in the Tokyo foreign exchange market, reaching its highest level since 10 August. Market participants were seen buying yen call options, appearing to prepare for a sharp further rise.
The Bank of Japan's hawkish comments were cited as the direct cause of the yen's appreciation. Former Policy Board member Takata (高田) suggested that the Bank had entered a new phase in which it could raise interest rates flexibly, indicating the possibility of changing the previous assumption of 25-basis-point increases.
Bank of Japan Governor Ueda Kazuo (上田和夫) indicated an intention to seriously discuss interest-rate increases at every meeting, including this month's meeting, suggesting that the interval between hikes could be shortened. The market consequently began to price in a high probability of a September hike.
Pressure from the United States for a shift in fiscal and monetary policy also had a strong impact, with comments by Treasury Secretary Scott Bessent and Deputy Treasury Secretary Erin Brown heightening tension in the yen market. Japan's long-term interest rates moved above the 3% threshold, while the 30-year yield also reached the 4% range. At the auction, the bid-to-cover ratio for the 30-year bonds fell below the previous auction, spreading caution among investors.