The joint Japanese-U.S. efforts to shore up the battered yen two weeks ago have heightened market bets that the Bank of Japan will need to hike rates faster and further. This has raised the stakes for the currency at next month’s policy meeting.

Rate Hike Expectations

Co-ordinated intervention between Japan, the U.S. Treasury, and South Korea drove the yen about 5% higher in late July and early August, a gain it has since struggled to hold. A sharp repricing in rate expectations has added 25 basis points of priced-in hikes this year as traders warm to the idea the BOJ may at last start to support the yen.

U.S. Treasury Secretary Scott Bessent triggered the move by urging Japan to follow up joint intervention with ‘policy and fundamentals,’ interpreted as a nudge to Prime Minister Sanae Takaichi to tone down her dovish stance and let the BOJ lift rates.

BOJ’s Next Move

Markets currently see a 76% chance of a hike in September, according to Tokyo Tanshi data, compared with 24% on July 30. The BOJ is the next factor to determine whether yen stability holds beyond the next market test.

‘In the short-term, the only remedy for the yen’s weakness is for the BOJ to raise rates,’ said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.