The Japanese yen is strengthening against the dollar as markets now price in approximately 76-80% probability of a Bank of Japan rate hike at its September 17-18 meeting, a dramatic shift from the roughly 24% odds after the July gathering. The BOJ raised its short-term policy rate to 1% on June 16, the highest level since 1995, and officials have signaled growing discomfort with inflation driven by rising energy prices and persistent yen weakness, with the currency trading around 159.16 against the dollar in mid-August. Coordinated currency interventions in late July and early August involving Japan, the US, and South Korea only offered temporary relief, briefly lifting the yen by about 5%. Japan, as the world’s largest creditor nation holding trillions in foreign assets, could exert significant pressure on global bond markets if rates continue to rise.
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