The yen strengthened to the 152 range against the dollar in intraday trading, its strongest level in seven months, as expectations grew that the Bank of Japan will accelerate the pace of its rate increases. The yen's advance now appears to have entered a sustained uptrend.
In Tokyo trading on the 8th, the dollar fell as low as 152.89 yen, putting the Japanese currency at its strongest level in about seven months, since mid-February. That surpassed the peaks the yen reached during Japan's unilateral first intervention in late April and the second round in late July, when Tokyo and Washington acted jointly for the first time in 15 years. The exchange rate bottomed in the 156 to 157 yen range during those two interventions.
Analysts said the move signals that the yen has entered a structural uptrend. "It feels like this could be the start of a bigger move," said Van Luu, global head of fixed income and currency strategy at Russell Investments, adding that the current rally appears to have formed naturally, unlike the gains driven by official intervention.
A cluster of recent developments has flipped selling pressure on the yen into buying almost overnight. The likelihood has grown that the Bank of Japan will raise rates repeatedly, including this month, while speculation is gaining traction that Japan's Government Pension Investment Fund may increase its allocation to domestic assets. "Momentum in the market is shifting, with not only hedge funds but also investors trading on a medium- to long-term view unwinding short-yen, long-dollar positions," said Yusuke Okada, senior researcher at the treasury and forex department of Mitsubishi UFJ Trust and Banking. A pause in the dollar-favoring flows tied to tensions in the Middle East, which had weakened appetite for the U.S. currency, has also pushed the yen higher.
Revised second-quarter gross domestic product data released the same day confirmed the economy is growing, further raising the odds of a rate increase. Real GDP rose 0.4% from the previous quarter, the Cabinet Office said, up 0.1 percentage point from the 0.3% growth in the preliminary reading. On an annualized basis, the second-quarter figure translates to 1.4% growth, above the 1.1% initially reported.
The fiscal expansion being pushed by Prime Minister Sanae Takaichi's government, however, looks set to be a wild card. According to The Japan Times, the Takaichi administration plans to cut the consumption tax to 1% through 2029 before restoring it to 8%. In its place, the government is considering introducing income-linked subsidies and moving the start of payments forward by about five months, to April 2029 from September of that year.
