The yen surged more than ¥5 in two days, entering the ¥155 range. Expectations of a narrowing U.S.-Japan interest-rate differential, anticipation of a Bank of Japan rate hike, and speculation that GPIF will increase its yen-denominated assets combined to heighten concerns over a carry-trade unwind. The next focus is the U.S. employment report and the Bank of Japan's policy direction.
The yen, which had weakened to the low ¥160s per dollar, turned to an appreciation of about ¥5 over two days and entered the ¥155 range. The move was driven by expectations of an additional Bank of Japan rate hike this year and speculation that GPIF will increase its yen-denominated assets, with the unwinding of speculative positions that had previously fueled yen depreciation believed to be under way.
Expectations of a narrowing U.S.-Japan interest-rate differential moved the market as hawkish remarks by Bank of Japan Policy Board member Takada Hajime (髙田創) coincided with Federal Reserve Governor Waller indicating that he supports holding off on a rate hike. Some market participants have become increasingly concerned that a break below the ¥155 level could trigger a broader bout of yen appreciation. The U.S. employment report for August has been identified as the next focus.
Market participants are said to believe that if the yen breaks above the 200-day moving average, which marked a watershed for yen appreciation, investors will accelerate the unwinding of their short-yen positions, potentially speeding the yen's rise. Speculation about Bank of Japan intervention also emerged, but no evidence of intervention has been identified in the daily account data.
Signs of a yen carry-trade unwind have also been noted, and many market participants believe that a reduction in trades involving borrowing yen to invest in high-yielding currencies will support yen appreciation. Data from the CFTC and analysis by major banks indicate that short-yen positions are substantial, with some warning that an unwinding could accelerate if the yen falls below ¥155 per dollar.
Speculation that GPIF will review its asset allocation has also resurfaced. Remarks by people close to GPIF have prompted observations that holding a meeting during the summer holiday period would be unusual. Meanwhile, it remains unclear whether an additional Bank of Japan rate hike will become a reality, and attention will now turn to the U.S. employment report and the announcement following the Bank of Japan's policy meeting.