The dollar fell to a one-month low against the yen on Thursday as traders raised bets on a Bank of Japan rate hike this month. Fed officials pointed to a possible pause in U.S. tightening, adding further pressure on the dollar, while authorities in Tokyo and Washington kept open the option of joint intervention.
The dollar dropped 2% to a one-month low of 155.32 yen, closing in on its Aug. 3 low of 155.21 yen. The move extends a rally that had already lifted the yen by more than 2% against the dollar this week, to its highest level in a month at 155.57, following a 0.9% move the previous day.
BOJ rate-hike bets drive the rally
Bank of Japan board member Hajime Takata sparked the move by signaling that a 25-basis-point rate hike at the BOJ's Sept. 17-18 meeting is far from locked in, opening the door to a larger increase or consecutive hikes. His remarks, which suggested the BOJ needs to move more "nimbly," appeared to heighten the prospects of a decisive move. Markets now believe there is a 77% chance of a rate rise at the BoJ's next meeting, which starts on Sept. 17.
Fed signals point to a pause
The dollar also weakened after Fed Governor Christopher Waller pointed to signs of disinflation, which he said might leave him inclined to hold interest rates this month. According to Reuters: "give disinflation a chance," Waller said, adding that the Fed could wait one meeting.
New York Fed President John Williams told CNBC he saw no clear signs of a necessity to raise interest rates for now. The dollar index fell 0.58% to 99.02, its worst single-day performance since Aug. 19.
Intervention risk keeps traders wary
The yen's rise comes amid chatter that Japanese and U.S. authorities could again intervene in foreign-exchange markets. BNY's Geoffrey Yu said dollar/yen has continued to decline as markets remain hesitant to test the authorities' resolve to defend the yen.
Market participants noted the sharp appreciation mirrored the speed of past intervention rounds, even though Tokyo was not tapping its reserves this time. Japan's Finance Minister Satsuki Katayama and U.S. Treasury Secretary Scott Bessent reaffirmed their readiness to act jointly if disorderly FX volatility resumes.
Sources: The Wall Street Journal, The Guardian, Investing.com
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