Yen Extends Gains as Traders Price In Faster BOJ Rate Hikes

The yen extended its gains on Thursday after a sharp rally in the previous session, reaching 157.545 per dollar in Asian trading, its strongest level in nearly a month. The currency rose 0.9% overnight, initially raising speculation that Japanese authorities could have intervened to support the yen. However, the scale and temporary nature of the move led traders to instead attribute the rally to a hawkish reassessment of Japanese interest-rate expectations.

The yen’s strength was broad-based, with the euro falling 0.57% to 182.90 yen and sterling declining 0.55% to 212.81 yen. The latest rally followed hawkish remarks from Bank of Japan board member Hajime Takata, who called for more flexible and timely rate increases to counter intensifying inflationary pressures. Markets are now pricing in a BOJ rate hike this month at close to full probability, reinforcing expectations for a faster tightening path.

Attention has now shifted to Friday’s U.S. nonfarm payrolls report, with economists expecting 56,000 new jobs after a surprise decline of 23,000 in July and an unemployment rate of 4.1%. The dollar eased 0.18% against a basket of currencies to 99.41, while the euro traded around $1.1595 and sterling at $1.3495. Markets are pricing a 61% probability of a September Federal Reserve rate hike, meaning a significantly weaker U.S. jobs report could reshape expectations for the Fed’s next move.

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