The Japanese yen maintained its strength against the U.S. dollar on Friday, poised for its most significant weekly gain in over a month. This rally is attributed to traders increasing their bets on an interest rate hike by the Bank of Japan (BOJ), with some analysts suggesting the market is anticipating the BOJ will be more hawkish than previously expected at its September 17-18 meeting. The yen touched 155.25 per dollar in morning trade, close to its August high of 155.20, and was last trading flat at 155.71. It is on track for a 2.5% gain this week, marking its largest weekly increase since late July, a period that saw a rare joint intervention by Japan and the U.S. to stabilize the currency.
While there was no clear evidence of official intervention despite a 2% jump on Thursday, Japan's top currency diplomat, Atsushi Mimura, stated on Friday that he remains vigilant regarding exchange-rate movements and is in constant communication with U.S. authorities. This statement kept markets on high alert for the possibility of another yen-buying intervention. Analysts like Masahiko Loo, senior fixed income strategist at State Street Investment Management in Tokyo, noted that the market is cautiously reassessing a more hawkish BOJ path, with expectations that Japan may continue normalizing policy into 2027.
Meanwhile, the U.S. dollar remained flat, with the dollar index at 99.01. The euro was flat at $1.1625, and sterling was at $1.3527. Attention is now shifting to key U.S. data releases, including nonfarm payrolls and next week's CPI inflation, ahead of the FOMC meeting on September 15-16. The greenback is projected to experience a 0.7% weekly decline. Federal Reserve Governor Christopher Waller's comments on Thursday, indicating a leaning towards keeping interest rates steady if inflation moderates, led traders to pare back bets on a September rate hike, with implied probabilities falling to 50%.
