With market expectations that the Bank of Japan will raise interest rates next week, the Japanese yen has recently appreciated rapidly. However, Bloomberg warns that this upward trend may peak within the next week. Several experts suggest that if the Bank of Japan fails to meet market expectations, or if the possibility of a rate cut by the Federal Reserve in the United States diminishes, the yen may stop rising and fall back.
The yen reached a two-and-a-half-month high against the US dollar, as the market speculated on the Bank of Japan raising rates next week.
The article points out that the yen’s upward trend is fragile, with recent gains possibly being amplified by suspected intervention in the currency market, similar to the rapid reversal of gains by the yen after strong US economic data led to reduced expectations of a rate cut in the US.
According to data from the derivatives market, there is a 41% chance that the Bank of Japan will raise rates by 15 basis points (0.15%) at the meeting on the 31st, showing caution in the market. A Bloomberg survey shows that only 30% of Bank of Japan watchers predict a rate hike, and over 90% believe that there are risks associated with a rate hike.
Traders are uncertain about whether the yen will rise at the Bank of Japan meeting next week, with some hedge funds choosing to wait and see. Even if the Bank of Japan tightens policy next week, there are reasons to believe that carry trades on the yen will continue to exist. The attractiveness of carry trades may still exist if the yen continues to be borrowed in large quantities, potentially putting pressure on the yen to depreciate.