The Japanese yen surged by over 2% against the U.S. dollar on Thursday, touching 155.28 per dollar, its strongest level in a month. This sharp appreciation has sparked speculation about possible currency intervention, especially after Japan's record spending of 15.4 trillion yen ($98 billion) between July 30 and August 26, which included a coordinated yen-buying effort with the U.S. on July 31. However, market watchers predominantly attribute this recent strengthening to growing expectations of a Bank of Japan (BOJ) interest rate hike this month, following hawkish comments from policymakers. The BOJ's next policy decision is scheduled for September 18.
The yen's rally was broad, with significant gains against the euro and British pound. Japanese authorities, including Vice Finance Minister for International Affairs Atsushi Mimura, have stated they are not satisfied with the current moves and remain on high alert. The yen had crossed the 160 per dollar mark earlier in the week, a level often seen as increasing the likelihood of intervention. Despite some analysts, like Takuji Okubo of Japan Macro Advisors, suggesting the move could be intervention, others, like ING's Chris Turner, doubt it due to the lack of dislocation in FX electronic matching systems.
The increasing likelihood of a BOJ rate hike this month is a key driver. BOJ board member Hajime Takata indicated on Wednesday that the central bank should raise rates "nimbly" in response to inflation, suggesting potentially faster or larger moves than the previously anticipated semiannual pace. Governor Kazuo Ueda also kept the door open for higher rates. Markets are now nearly fully pricing in a BOJ rate hike for September.
Traders are also vigilant for potential intervention during Japan's upcoming "Silver Week" holidays, which immediately follow the BOJ meeting and offer thinner trading conditions. Concerns about disorderly yen movements are shared by officials in Washington and Tokyo, with U.S. Treasury Secretary Scott Bessent having previously urged Japan to communicate its interest rate path and indicated a belief that the Japanese government and BOJ would act to strengthen the yen. A sustained appreciation of the yen, however, may ultimately require a more hawkish BOJ and new initiatives to encourage domestic investment in Japan, especially given that Japanese investors are the largest overseas holders of U.S. Treasurys, with about $1.1 trillion.
