The Japanese yen rallied to a six-month high against the U.S. dollar during Asian trading on Tuesday, breaking above the psychologically important 155 level and reaching 153.53, surpassing the level where the U.S. and Japan jointly intervened in late July to curb the yen's weakness. The advance was driven by expectations of accelerated rate hikes by the Bank of Japan and potential capital inflows into Japanese assets. Finance Minister Katsunobu Katayama said Japan will continue to coordinate with the U.S. to ensure market stability, keeping investors on alert for further intervention. OCBC's FX strategist Christopher Wong noted that markets are almost fully pricing in a 25-basis-point rate hike at next week's BOJ meeting, with comments from economic adviser Sanae Takaichi also shifting rate expectations. The yen has gained nearly 4% since September, triggering stop-losses and risks of unwinding yen-funded carry trades. Jefferies' data showed cross-border yen borrowing surged from 216 trillion yen in December 2021 to 360 trillion yen in March this year, making the current carry trade the largest in 30 years. Markets are now fully betting on a BOJ rate hike in September and discussing another increase within the year.
Yen surged to a six-month high against the dollar in Asian trading on Tuesday, breaking above the 155 level and briefly touching 153.53, surpassing the level where the U.S. and Japan jointly intervened in late July to curb yen weakness. The rally was fueled by expectations of faster rate hikes by the Bank of Japan and potential capital inflows into Japanese assets.
Finance Minister Katsunobu Katayama said Japan will continue to coordinate with the U.S. to ensure market stability, keeping investors on alert for further intervention. "We will maintain close communication with the U.S. Treasury to uphold foreign exchange market order. Our policy stance has not changed at all since the joint currency intervention with the U.S.," Katayama said at a press conference on Tuesday.
Christopher Wong, FX strategist at OCBC Bank, noted that "markets are almost fully pricing in a 25-basis-point rate hike at next week's BOJ meeting. Comments from economic adviser Sanae Takaichi have also shifted rate expectations, with her forecasting further tightening after September's rate hike."
The yen has gained nearly 4% against the dollar since September, breaking through 155 and triggering a wave of stop-losses and risks of unwinding funding carry trades. Traders said that after 155 was breached, options dealers were forced to sell dollars, and dollar-yen could test prior lows at 152.27 and 152.10.
Jefferies analysis showed that cross-border yen borrowing surged from 216 trillion yen in December 2021 to 360 trillion yen in March this year, making the current carry trade the largest in 30 years. Markets are almost fully betting on a 25-bps rate hike by the BOJ in September, with discussions of another rate increase within the year.
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