The Japanese yen strengthened sharply against the US dollar on Thursday as financial markets increased expectations that the Bank of Japan (BOJ) could raise interest rates later this month.
The yen climbed to around 155.6 per US dollar, marking its strongest level in about a month. The move followed a nearly 1% gain in the previous session.
The rally came after BOJ board member Hajime Takata signalled that the central bank should respond more flexibly to rising inflation rather than follow a fixed schedule for rate increases.
Markets are now pricing in roughly a 75% probability of a 25-basis-point BOJ rate increase at the September 17-18 meeting, with some investors also considering the possibility of another increase in October.
The yen’s jump initially raised speculation that Japanese authorities might have intervened in the currency market. However, official data did not show evidence of yen-buying intervention, leading analysts to attribute the move primarily to changing expectations about BOJ monetary policy.
Meanwhile, the US dollar weakened against a broader group of currencies. The dollar index fell to around 99, while the euro and British pound both gained against the greenback.
The dollar also came under pressure after Federal Reserve Governor Christopher Waller indicated that he could support keeping US interest rates unchanged if upcoming economic data confirms that inflation pressures are easing.
Attention is now turning to US employment data due on Friday. A weak jobs report could further influence expectations for Federal Reserve policy and create additional volatility in currency markets.
The sharp yen rally highlights how quickly currency markets can react when expectations for interest-rate differences between Japan and the United States change.