Expectations for the Bank of Japan to raise interest rates strengthen, and the yen rises to a seven-month high and returns to prefix 153

On Monday (8th), the yen rose to a seven-month high.

As traders reassessed the currency outlook, driven by expectations that the Bank of Japan would accelerate its tightening of monetary policy and that Japanese investors might repatriate funds, the yen rose to its highest level in seven months on Monday (8th), reaching a prefix of 153.

According to comprehensive foreign media reports, in early trading in Tokyo on Monday, the exchange rate of the yen against the U.S. dollar exceeded 154, and once reached 153.53 yen to 1 U.S. dollar, the highest since February this year, and then fell slightly to around 153.6.

As the market expects the Bank of Japan to accelerate interest rate hikes, and domestic pension funds increase their holdings of yen bonds, the market continues to liquidate long-term accumulated short positions, helping the yen break through the upper resistance line of 155. In the past six months, even if the authorities intervened in the market and took action to buy yen, they failed to break through this level. Therefore, the market expects that the yen may continue to strengthen in the short term.

Lee Hardman, senior currency analyst at MUFG, said the yen's breakout above the 155 mark seemed to strengthen traders' bullish view on the yen. Hardman pointed out that since this year, whenever the yen strengthens after intervention, the exchange rate tends to rebound near 155. Breaking this position is a signal that the yen may appreciate further.

Shusuke Yamada, chief Japan foreign exchange rate strategist at BofA Securities, predicts that as the yen continues to strengthen, it is expected to reach the 149 mark by the end of the year. Factors that have previously contributed to the yen's weakness include currency hedging by foreign investors when investing in Japanese stocks, yen selling due to the structure of Japan's economy, and policy risks.

Yamada said currency hedging has improved recently, partly due to a pullback in stock prices and a shift in the balance of payments from a deficit to a breakeven, reflecting a structural yen sell-off. In addition, policy risks have also changed, and market expectations for the Bank of Japan to raise interest rates have increased. The above factors have boosted market sentiment for the yen. Investors who had previously hedged based on expectations of a weaker yen, as well as export companies who predicted that the yen exchange rate would not exceed 155, all saw a change in sentiment within a week.