Coordinated yen-buying by Japan and the U.S. two weeks ago pulled the yen back from a 40-year low, but the rally has since faded, leaving the currency's fate in the Bank of Japan's hands. Traders now assign a 76% chance to a September BOJ hike, and analysts warn another delay would be read as a breach of faith with markets.
Rate bets surge as intervention gains slip
Markets currently see a 76% chance of a Bank of Japan hike in September, according to Tokyo Tanshi data, compared with 24% on July 30. The repricing has added 25 basis points of priced-in hikes this year as traders bet the BOJ will finally act to support the currency.
That leaves policymakers under pressure to meet those expectations or risk a new slide in a yen that has been pinned near multi-decade lows. U.S. Treasury Secretary Scott Bessent urged Japan to follow intervention with policy and fundamentals, interpreted as a nudge for Prime Minister Sanae Takaichi to soften her dovish stance and let the BOJ raise rates.
A rescue that already faded
The July 30-31 coordinated yen-buying operation between Japan and the U.S. — the first such action since 1998 — pulled the currency back from a 40-year low of 163.99 per dollar. The yen surged as strong as 155.20 in the days that followed but has since weakened back above the 159 level.
BlackRock's Rick Rieder, the firm's chief investment officer for global fixed income, told Bloomberg Television's Wall Street Week on August 13 that government intervention alone cannot fix the yen's structural weakness without the BOJ committing to a genuinely hawkish stance. He argued that any yen rally bought by government action is essentially borrowed time. The dollar pays investors far more than the yen does, and that gap gives capital a structural incentive to flow out of yen-denominated assets, Crypto Briefing reported.
Mizuho moves up its call, risks mount from delay
Mizuho Securities has moved up its base case for the next rate hike to September, pointing to a hawkish tone in the BOJ's July Summary of Opinions. It also raised its terminal rate forecast to 1.75% from 1.50%. Concerns about Japan's fiscal deficit and unfunded tax cuts remain, putting upward pressure on government bond yields and undercutting intervention's lasting impact, currency strategists at Mitsubishi UFJ Morgan Stanley Securities said.
With bond yields and swap rates already pricing in a September move, another delay by the BOJ would be seen as, according to SMBC Nikko Securities strategist Rinto Maruyama, "a betrayal of the market." Market players would lose faith in the BOJ's ability to continue its rate-hike path, he added, risking a fresh yen slide and climbing longer-term bond yields as inflation fears mount.
Sources: Investing.com, Crypto Briefing
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