The yen weakened again on expectations of US rate hikes, with the dollar briefly rising to the ¥159 level. The direction of the Japan-US interest rate differential and market warnings from the Ministry of Finance are now the market's main focus.
Selling of the yen and buying of the dollar accelerated further in the foreign exchange market, with the yen weakening to around ¥159 per dollar at one point. The trend continued from the Tokyo market's reopening after the holiday period, and the yen reached its lowest level in about three weeks.
The move was driven in part by growing expectations that the US Federal Reserve would pursue additional rate hikes, pushing US long-term interest rates temporarily above 5.1%. This strengthened the view that the Japan-US interest rate differential would be difficult to narrow, supporting demand for the dollar's higher yields.
Meanwhile, the Bank of Japan announced its decision at its monetary policy meeting on 18 September to raise its policy rate to around 1.25%. Rate hikes would normally support the yen, but the internal split among policymakers, including 2 votes against the decision, was a focus of attention. Immediately after the announcement, the yen briefly weakened to the ¥158 level.
On the night of 18 September, ahead of the holiday period, the government and the Bank of Japan conducted a rate check with bank dealers, inquiring about the level of foreign exchange transactions. The market briefly moved back toward yen appreciation at around ¥156, but the effect was limited, and selling pressure on the yen has again prevailed since the market reopened after the holiday period.