FRB Chair Warsh signaled an additional rate hike at the Jackson Hole symposium, driving US yields higher in the market and accelerating dollar strength and yen weakness. Views are spreading that the probability of a September rate hike is also rising rapidly.
At the Jackson Hole symposium, FRB Chair Warsh said that if inflation does not converge toward the 2% target, “there is work to do,” signaling the possibility of an additional rate hike. US yields rose in response, dollar buying prevailed, and the yen temporarily fell into the ¥160 range.
Late in trading in the New York market, dollar-yen rose to ¥160.15 and the dollar index reached 99.69. The probability of a rate hike of 0.25% points or more at the September FOMC surged from approximately 35% before the speech to 57.5% afterward.
Higher US yields are widening the US-Japan interest-rate differential and creating downward pressure on the yen. Concerns about rising prices continue to simmer in Japan, strengthening expectations for a Bank of Japan rate hike in September. Market participants are watching developments around the September FOMC and the outcome of the US-Japan finance ministers’ meeting.
At the finance ministers’ meeting, a one-on-one meeting between the Kishida administration and US Treasury officials has been discussed, with the impact on the yen exchange rate and Japanese interest rates expected to be a key focus. While some market participants believe Warsh’s remarks were less specific than in the past, they also say that developments in future policy will continue to require close attention.