Yen hits one-month high against U.S. dollar on BOJ rate hike expectations and intervention fears

The yen strengthened sharply Thursday, reaching a one-month high against the U.S. dollar as traders weighed the possibility of further Japanese intervention against rising expectations for Bank of Japan rate hikes.

The yen jumped more than 1% against the greenback, at one point touching 156.34 per dollar, according to LSEG data. That represents the yen's strongest level against the dollar since Aug. 3, shortly after the U.S. and Japan staged a joint intervention to support the struggling Japanese currency on July 31.

The yen was trading at 157.1 per dollar at 4:20 a.m. ET. The yen also rose against the euro and British pound.

Japanese government bond yields eased following a solid sale of 30-year dated debt, after coming under pressure amid a global sell-off and investor concerns about the country's fiscal position as it finalizes its 2027 budget.

The currency move follows a similar sharp 1% spike in the yen against the U.S. dollar on Wednesday, which fueled speculation among market watchers about whether Japanese authorities had staged another round of action. The currency earlier this week crossed the 160-per-dollar mark, which is often seen as a key threshold increasing the chance of intervention.

Japan spent a record 15.4 trillion yen ($98 billion) to boost the yen between July 30 and Aug. 26, according to its finance ministry. The U.S. separately confirmed its participation in a coordinated effort in late July in which it used its foreign-currency holdings to buy yen. Washington has not disclosed the exact amount, though a July 31 Reuters photo shows U.S. Treasury Secretary Scott Bessent's notepad reading, "Buy Japanese Yen (JPY) $5-10 bil."

Bessent told CNBC on Monday that he believed the Japanese government and Bank of Japan would take action that would lead to a stronger yen. He also privately urged officials to communicate the path of interest rates, according to local media.

Officials in both Washington and Tokyo have expressed concerns that disorderly moves in the yen could destabilize global markets.

Crucially, analysts say prolonged weakness in the currency could prompt domestic investors to reduce their holdings of U.S. Treasurys. Japanese investors are by far the largest overseas holders of Treasurys, with around $1.1 trillion worth of U.S. debt on their books as of June, according to the Department of the Treasury.

It is "possible" Thursday's current move represented further Japanese intervention, Japan Macro Advisors' chief economist Takuji Okubo told CNBC.

"But I do not think [the Ministry of Finance] has done this kind of small stealth intervention in recent history. So it is probably just a reaction to BOJ Governor Ueda's comment cementing the high likelihood of a BOJ rate hike in September," Okubo said by email.

There is also doubt that Wednesday's currency move was an intervention "given the lack of dislocation in the FX electronic matching systems at the time," ING's global head of markets Chris Turner said in a note.

The Bank of Japan makes its next monetary policy decision on Sept. 18, with a rate hike increasingly being priced in by markets.

BOJ board member Hajime Takata on Wednesday said the central bank should hike rates "nimbly" in response to rising inflation, according to a Reuters report and translation. Governor Kazuo Ueda was seen keeping the door open to higher rates in comments made Tuesday.

"U.S. and Japanese authorities must be satisfied by yesterday's price action," ING's Turner added. However, he noted that expectations for a Federal Reserve interest rate hike this month would likely keep the dollar supported against the yen.

A sustainable rise in the yen "now probably requires a much more hawkish Bank of Japan and some new initiatives to encourage domestic investment in Japan," Turner said.