Amid speculation over a turning point for the U.S. dollar/Japanese yen exchange rate, expectations of rate hikes by the September FOMC and the Bank of Japan have been reported in succession. While the market is pricing in a 0.25% rate hike, new Fed Chair Warsh rejects forward guidance, meaning expectations for the decision could shift depending on his remarks immediately beforehand.
The FOMC is scheduled for 16 September, followed by the Bank of Japan's monetary policy meeting on 18 September, and market attention is focused on expectations of rate hikes by both central banks. The market is pricing in a more than 90% probability of a 0.25% rate hike at the FOMC, and the exchange rate's outlook is drawing attention as a result.
Many of new Fed Chair Warsh's remarks can be read as hawkish, and the tendency evident at the Jackson Hole meeting has also been emphasized. However, he has completely rejected “forward guidance,” leading some to believe that the actual decision remains uncertain.
As for the Bank of Japan, a 0.25% rate hike is said to be fully priced in. At upcoming meetings, there may be moves suggesting a 0.50% proposal or an acceleration in the pace of rate hikes. The market believes that an additional policy stance will be needed to curb the yen's depreciation.
Fundamental analysis comprises three perspectives: the asset approach, the flow approach, and purchasing power parity. These are presented as potential factors for a reversal in the yen exchange rate, depending on improvements in Japanese interest rates and the current-account surplus.