The yen surged as the unwinding of carry trades accelerated. Market participants are debating the prospect of a Bank of Japan rate hike and the extreme scenario of rate hikes at 3 consecutive meetings.
The yen, which had steadied after foreign-exchange intervention by Japan and the United States, has once again attracted attention, strengthening this week to briefly break past the level of ¥156 to the dollar. The market has begun pricing in an acceleration of Bank of Japan rate hikes, while the unwinding of yen-selling positions has driven the yen higher.
Market participants expect the Bank of Japan may take some action at its monetary policy meeting on 18 September, and Takada (高田) said the possibility of a rate hike exceeding 0.25 percentage points cannot be ruled out. Yujiro Goto (後藤祐二郎) of Nomura Securities pointed out that if the yen's depreciation continued and the yen weakened toward ¥160 to the dollar, the Bank of Japan could shift to more aggressive policy management.
The unwinding of yen carry trades has spread to other markets. In tandem with the yen's appreciation, high-yielding currencies such as the Brazilian real, South African rand and Mexican peso fell by more than 1%. Risk is being redistributed across the market as a whole, while Japanese companies are also increasing dollar sales and yen purchases.
While Prime Minister Takaichi Sanae (高市早苗)'s cautious stance on rate hikes is drawing market attention, the yen could come under renewed downward pressure if that stance continues. If she refrains from commenting or emphasizes the Bank of Japan's independence, the yen could also move to test the ¥150 level to the dollar.