The yen jumped to a one-month high against the dollar on Thursday as traders raised bets on faster Bank of Japan rate hikes rather than fresh currency intervention. A solid 30-year bond auction also steadied nerves after this week's global debt sell-off.
USD/JPY dropped 1.4% to ¥156.40 on Thursday. That extended Wednesday's 0.9% advance, as investors watched for signs of official intervention. A rare joint intervention by Japanese and US authorities in July and August had pushed the yen to about ¥155, before it gave back those gains to trade near ¥160 in recent days. The move was broad-based, with the yen also gaining against the euro and the pound.
Bets on faster BoJ tightening drive the move
The rally follows hawkish remarks from Hajime Takata, a Bank of Japan board member, who said Wednesday the central bank should raise rates in a nimble, rather than fixed, manner to counter inflation pressure. BoJ governor Kazuo Ueda added that the central bank will now discuss interest rates at every forthcoming meeting, a signal that a move could come at any time.
Traders are now pricing roughly a 25% chance the BoJ delivers quarter-point hikes at both its September and October meetings, according to swaps markets. Separately, a hike this month is nearly fully priced in by markets. According to Reuters: "I believe there's little incentive for (the) Japanese government to intervene at this moment," said Kazumasa Ishii, a strategist at UBS SuMi Trust Wealth Management.
Bond auction eases market nerves
Japan also sold 30-year government bonds at an average yield of just over 4%, an auction that showed slightly weaker demand than the previous sale but still helped calm investors after a global bond sell-off pushed borrowing costs to multi-year highs. Earlier in the week, Japan's 10-year yield touched 3%, its highest level since 1996, before easing back slightly.
Analysts also pointed to an unusual August meeting of Japan's pension fund, the GPIF, as adding to market jitters, after finance minister Satsuki Katayama suggested in July the fund might increase its domestic asset holdings.
Dollar broadly on the back foot
The yen's strength weighed on the dollar more broadly. The euro slid more than 1% to 181.62 yen, while the dollar index dropped 0.4% to 99.25 against a basket of peers. Traders now await Friday's US nonfarm payrolls report, where analysts forecast a gain of 56,000 jobs following July's shock drop of 23,000, a figure that could shape interest rate expectations for the Federal Reserve.
Sources: FT, Investing.com
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