Yen Weakens as Dollar Rebounds

The Japanese yen weakened past 154 per dollar on Friday, retreating from near seven-month highs as the dollar recovered after data showed US producer inflation accelerated in August, bolstering bets for a Federal Reserve rate hike next week. The yen also faced pressure from surging oil prices that kept inflation risks elevated, with the US and Iran showing no signs of backing down from the war. Meanwhile, data showed Japanese producer inflation climbed 7.6% in August, reinforcing expectations for a Bank of Japan rate increase this month. Sentiment among large manufacturers also improved sharply in Q3, reaching its strongest level since Q4 2021 amid robust government support measures. Still, the yen remained up more than 3% so far this month, supported by expectations for more aggressive BOJ policy tightening, the unwinding of carry trades and increased capital repatriation.

The Japanese yen traded around 153.4 per dollar on Thursday, remaining close to its strongest level in seven months ahead of an expected Bank of Japan rate hike next week. The central bank is widely expected to lift its policy rate to 1.25%, its highest level in roughly 31 years, following a rate increase in June. The BOJ aims to address the risk of inflation exceeding expectations amid rising crude oil prices and continued yen weakness. The Takaichi administration has also taken a more hawkish stance, with policymakers recognizing the need to curb excessive yen depreciation. Meanwhile, US Treasury Secretary Scott Bessent cautioned traders against betting on a weaker yen earlier this week, saying he has “pretty good insight” into the BOJ’s actions when making a call and intervening in the currency market. The yen has also benefited from the unwinding of carry trades and expectations of greater capital repatriation.

The Japanese yen appreciated toward 153 per dollar on Wednesday, holding near its strongest level in almost seven months after US Treasury Secretary Scott Bessent warned traders on betting against the currency. The former hedge fund manager said he has “pretty good insight” on what the Bank of Japan will do when he is making a call and intervening with the yen. The BOJ is broadly expected to raise interest rates next week, while the Takaichi administration has adopted a more hawkish stance as policymakers acknowledge the need to limit excessive yen weakness. The currency is also reversing the bearish forces that drove it to a 40-year low in July, including an unwinding of carry trades and expectations of increased capital repatriation. Meanwhile, private-sector data showed Japanese manufacturers’ sentiment improved for a second consecutive month in September, helped by resilient demand for semiconductors and data centers.