- The yen jumped nearly 2% on Thursday, reversing a month of gradual decline, as traders lifted BOJ hike bets and unwound carry trades.
- The dollar fell to 155.305 yen after comments from Japan's top currency diplomat, Atsushi Mimura, as market participants remained on alert over the chance of another yen-buying intervention.
- The yen held most of its gains Friday after advancing more than 2% on Thursday, nearing levels last seen in May following the Ministry of Finance intervention.
- The move came after hawkish comments from BOJ Governor Kazuo Ueda and board member Hajime Takata.
- Traders increased bets on Bank of Japan (BOJ) interest-rate hikes.
- A rush to unwind yen-funded carry trades helped send the currency to a one-month high against the dollar as traders ramped up bets on further BOJ rate hikes.
The yen's recent surge of nearly 2% against the dollar has been attributed to heightened speculation regarding potential Bank of Japan (BOJ) interest rate hikes and intervention risks.
Japan's top currency diplomat, Atsushi Mimura, stated he is on alert for exchange-rate fluctuations, emphasizing the importance of constant communication with U.S. authorities.
Following Mimura's remarks, the dollar fell to 155.305 yen, as traders reacted to the possibility of yen-buying interventions.
The yen's rise reversed a month-long decline, driven by a rush to unwind yen-funded carry trades and increased interest in holding the yen over other G10 currencies.6
“We’re seeing unwinds of yen-funded carry trades and significant interest to own the yen over other G10 currencies in the medium term,” said Sagar Sambrani, a senior foreign-exchange options trader at Nomura.
Analysts suggest that the BOJ could raise interest rates at three consecutive meetings through December if yen weakness continues, with traders pricing in a quarter-point increase at the upcoming September 18 meeting.
“The broad consensus seems to be that the easy carry trade is behind us,” noted Sambrani, highlighting a shift in cross-border flows from Japan to the U.S.
As a result, high-yielding currencies like the Brazilian real and South African rand fell more than 1% against the yen, reflecting the currency's strengthened position in the market.
“The yen's 2% surge on Thursday reversed a month of decline, with traders unwinding carry trades and pricing in a quarter-point BOJ hike at the Sept 18 meeting. Nomura sees potential for three consecutive rate hikes through December if yen weakness persists.”
