The Japanese yen gained ground against the dollar on Thursday, with USD/JPY sliding 0.7% to 157.6, driven by intensifying market expectations that the Bank of Japan will raise interest rates as early as its mid-September policy meeting.
BOJ Governor Kazuo Ueda signaled that policymakers would discuss higher rates and inflation at the upcoming meeting, noting that greater attention is needed to upside price risks. Board member Hajime Takata reinforced the dovish-turned-hawkish tone, leaving open the possibility of an outsized rate increase or even back-to-back hikes.
The 10-year Japanese government bond yield climbed to 3%, strengthening the appeal of holding yen-denominated assets and fueling capital repatriation flows. Analysts at Natixis and MUFG both backed a September rate increase from the BOJ.
On the diplomatic front, U.S. Treasury Secretary Scott Bessent met with Japanese Finance Minister Satsuki Katayama and agreed to coordinate efforts to ensure "orderly" yen movements, signaling a willingness by both sides to monitor and manage currency volatility.
Meanwhile, markets are pricing in a 67% probability of a Federal Reserve rate hike in September, adding further momentum to dollar weakness and supporting the yen's rally.
