The Japanese yen rose to its highest level in two months ahead of the upcoming Bank of Japan (BoJ) meeting.
This rise is part of a broader trend where the yen has outperformed other major currencies, driven by speculation about possible BoJ rate hikes and interventions.
Market expectations for BoJ rate hikes have increased, leading speculators to take a more cautious stance regarding their yen-funded carry trades.
The dollar-yen exchange rate fell to its lowest point since mid-May, and the euro also declined against the yen. The rally could continue to put pressure on carry trades, affecting higher yielding currencies like the Australian and New Zealand dollars.
The yen could continue to surge and has been strengthening since early July, supported by interventions from the Japanese authorities and comments from influential figures such as Donald Trump and Japanese politicians.
With the BoJ set to review its policy next week, the currency as well as Japanese yields could see strong volatility. Yields in particular could continue to rise as the BoJ normalizes and tightens its monetary policy. Markets could also react to new data releases ahead of the BoJ’s meeting.
