Japanese yen soars as bets on Bank of Japan interest rates and talk of intervention rises

The yen rose sharply on Thursday, hitting a one-month high against the U.S. dollar as traders weighed the possibility of further Japanese currency intervention in response to rising expectations for a rate hike from the Bank of Japan.

According to LSEG data, the yen rose more than 1% against the dollar, at one point reaching 156.15 yen to the dollar. This represents the yen’s highest level against the dollar since August 3, shortly after the US and Japan jointly intervened on July 31 to support the struggling Japanese currency.

The yen was traded at: 156.4 per dollar 6:20 a.m. ET. The yen also appreciated against the euro and the British pound.

According to Reuters, Japan’s Deputy International Finance Minister Jun Mimura said on Thursday that authorities were “not satisfied or relieved” by the recent developments and “remain on high alert.”

Yields on Japanese government bonds fell following solid selling. 30 years It repaid its term debt on Thursday after coming under pressure amid a global stock market slide and investor concerns about the country’s fiscal position ahead of finalizing its 2027 budget.

The currency move follows a similar 1% jump in the yen against the dollar on Wednesday, increasing speculation among market participants that Japanese authorities may take new measures. Earlier this week, the currency crossed the $160 level, seen as a key threshold that could increase the likelihood of intervention.

According to the Ministry of Finance, Japan spent a record 15.4 trillion yen ($98 billion) between July 30 and August 26 to promote the strong yen. In late July, the United States separately confirmed its participation in a cooperative effort to use its foreign currency holdings to purchase yen. Washington has not disclosed the exact amount, but a July 31 Reuters photo shows U.S. Treasury Secretary Scott Bessent’s memo pad reading “Buy $5 billion to $10 billion of Japanese yen.”

Bessent told CNBC on Monday that he believed the Japanese government and the Bank of Japan would take actions that would lead to a stronger yen. According to local media, he also privately asked officials to tell them the direction of interest rates.

Officials in Washington and Tokyo expressed concern that the yen’s disorderly movements could destabilize global markets.

Importantly, analysts have pointed out that a prolonged period of currency weakness could cause domestic investors to reduce their holdings of U.S. Treasuries. Japanese investors are the largest foreign holders of government bonds, holding about $1.1 trillion worth of U.S. debt as of June, according to the Treasury Department.

Takuji Okubo, chief economist at Japan Macro Advisors, told CNBC that the current measures on Thursday “could” mean further intervention by Japan.

“However, I do not believe that[the Ministry of Finance]has undertaken this type of small-scale stealth intervention in recent history, so this is likely simply a response to BOJ Governor Ueda’s comments that cemented the likelihood of a September BOJ rate hike,” Okubo said in an email.

Chris Turner, ING’s head of global markets, also said in a note that he suspected Wednesday’s currency movements were an intervention “given that there was no disruption to the electronic exchange matching system at the time.”

The Bank of Japan will decide on its next monetary policy on September 18th, and the market is increasingly pricing in an interest rate hike.

Bank of Japan board member Hajime Takada said on Wednesday that the central bank should raise interest rates “nimbly” in response to rising inflation, suggesting a move could be faster or larger than the recent six-month pace, as reported and translated by Reuters. Governor Kazuo Ueda was seen as keeping the door open for rate hikes in his comments on Tuesday.

Analysts at Deutsche Bank said on Thursday: “The market is focused on rumors of possible intervention over thin trading during the ‘Silver Week’ holiday, when markets are closed for three days immediately after the Bank of Japan meeting.”

ING’s Turner said expectations that the U.S. Federal Reserve will raise interest rates this month will likely keep the dollar supported against the yen.

Turner said a sustained rise in the yen “will probably require a much more hawkish Bank of Japan and new efforts to encourage domestic investment in Japan.”