This week, developments in US interest rates and expectations of a Bank of Japan rate hike combined to push USD/JPY close to the ¥160 level at one point. In the latter half of the week, yen appreciation pressures and intervention expectations remained in play ahead of the US employment report.
During the week beginning 31 August, the hawkish stance of US monetary policy and tensions in the Middle East supported the dollar, sending USD/JPY briefly up to ¥160.39, although the impact of the US-Japan interest-rate differential prevented any significant yen appreciation. In Tokyo trading, growing expectations of a Bank of Japan rate hike pushed USD/JPY down to around ¥159.73, while yen crosses also lacked stability.
On 2 September, USD/JPY rose to ¥160.39 on safe-haven dollar strength amid Middle East risks. In the afternoon, a sharp rise in domestic interest rates and expectations of a Bank of Japan rate hike prompted dominant yen buying, sending the pair sharply back down into the ¥159 range. Dollar buying continued in European and US markets, while rising intervention expectations drove yen crosses lower across the board.
On 3 September, comments from a Bank of Japan committee member suggesting a rate hike and expectations that the Government Pension Investment Fund (GPIF) would increase its domestic bond investment decisively strengthened yen buying, sending USD/JPY plunging into the ¥157 range. In the New York market, as the dollar's advance paused against the backdrop of comments by Waller, there were also periods of broad-based yen strength, with EUR/JPY and GBP/JPY recording steep declines.
On 4 September, USD/JPY entered another corrective phase and rebounded to the low ¥156s in Tokyo trading. With the US employment report in focus, another volatile move is expected depending on developments during New York trading. Depending on the dollar's reaction after the employment report, demand for hedges against yen appreciation and developments in intervention expectations will be the focus going forward.