Yen Surges on Suspected Rate Check

The Japanese yen appreciated past 158 per dollar on Thursday, extending the previous session's rally on speculation that authorities had conducted a rate check, where officials would contact banks to check on exchange rates and signal the possibility of intervention. The recent moves also kept markets on high alert for any signs that authorities could step in again to support the Japanese currency. The yen sank to 40-year lows in late July amid wide interest rate differentials, growing fiscal concerns and elevated energy and import costs, shortly before Tokyo and Washington conducted a joint yen-buying operation. Meanwhile, BOJ board member Hajime Takata raised the possibility of outsized or back-to-back rate hikes to contain rising inflationary pressures. Governor Kazuo Ueda also said that policymakers need to pay greater attention to upside price risks when conducting monetary policy, signaling that a rate hike is likely later this month.

The Japanese yen depreciated past 160 per dollar on Wednesday, hitting its weakest level in a month and retracing about two-thirds of the gains made when Tokyo and Washington jointly intervened in currency markets about a month ago to support the yen. Markets remain alert to the possibility of further intervention by authorities given the negative impact of a weak yen on domestic inflation and the broader economy. The yen remained under pressure from wide interest rate differentials, growing fiscal concerns in Japan and elevated oil prices linked to the conflict in the Middle East. US Treasury Secretary Scott Bessent also met with Finance Minister Satsuki Katayama this week, where they agreed to continue coordinating efforts to achieve “orderly” yen moves. Meanwhile, Bank of Japan Governor Kazuo Ueda said policymakers need to pay greater attention to upside price risks when conducting monetary policy, signaling that an interest rate hike is likely later this month.

The Japanese yen traded around 160 per dollar on Tuesday, remaining at a key psychological level that has heightened concerns over possible follow-up intervention by authorities. The yen has retraced more than half of its gains following the joint Japan-US currency market intervention in late July, with persistent structural weakness continuing to weigh on the currency. The yen remained under pressure from wide interest rate differentials, growing fiscal concerns in Japan and elevated oil prices linked to the conflict in the Middle East. Investors also continued to assess the outlook for Bank of Japan monetary policy following reports that US Treasury Secretary Scott Bessent urged Finance Minister Satsuki Katayama and BOJ Governor Kazuo Ueda to raise interest rates. Expectations are building for a September rate increase from the Japanese central bank amid concerns over persistent yen weakness and import-driven inflation.