Japanese Yen Stays Range-Bound

The Japanese yen traded little changed around 158.9 per dollar on Monday, as stronger expectations for an early Bank of Japan rate hike continued to underpin the currency. Markets are now pricing an around 82% probability of a September rate increase, up sharply from about 23% before the BOJ’s July meeting, with the widely expected move taking the policy rate to 1.25% from 1%. Investors are awaiting Deputy Governor Ryozo Himino’s speech on Thursday for further clues on the timing and pace of policy tightening, while recent acceleration in Japanese inflation has reinforced expectations for further normalization. Additionally, broad US dollar weakness amid concerns over the Treasury’s expanded long-term bond buybacks added to demand for the yen.

The Japanese yen was little changed around 159 per dollar on Friday after experiencing heightened volatility earlier this week, as data showed Japan’s inflation rate accelerated for the second consecutive month, strengthening the case for a Bank of Japan interest rate hike in the near term. Markets are speculating on a possible move in September, with BOJ Governor Kazuo Ueda indicating that authorities could begin normalizing policy at a faster pace. The yen jumped nearly 1% on Wednesday after the US Treasury Department announced larger debt buybacks aimed at containing borrowing costs, before giving back more than half of those gains a day later amid concerns that the US government’s plan may provide only a temporary solution. The local currency also remained under longer-term pressure due to wide interest rate differentials, mounting fiscal concerns and elevated energy and import costs.

The Japanese yen traded near 158 per dollar on Thursday after gaining nearly 1% in the previous session, supported by a sharp decline in the dollar and retreating Treasury yields as the US government moved to contain long-term borrowing costs by expanding its bond buyback program. The US Treasury Department said it would at least double the size of liquidity-support buyback operations covering securities with maturities from 10 to 30 years, as the recent surge in yields heightened concerns over market liquidity and stability. Still, the yen remained under pressure over the longer term due to wide interest rate differentials, mounting fiscal concerns and elevated energy and import costs. Latest data also showed Japan’s trade deficit widened sharply in July as imports surged to a record high on increased crude oil purchases, while export growth remained robust, supported by strong demand for AI-related chips.