One of the most hawkish members of the Bank of Japan's board, Takata Hajime, has indicated that he does not rule out significant or consecutive interest rate hikes, a statement that propelled the yen higher. The currency strengthened 0.5% to 159.44 against the US dollar after briefly touching 160.39 earlier in the session.
Takata stated that a 0.25% rate increase is "not a foregone conclusion," adding that, overall, successive increases remain a possibility. Eiichiro Morioka, chief market strategist at Aozora Bank, commented that the market reacted to Takata's more explicit language, particularly his clear mention of potential back-to-back hikes, which offers greater clarity than previous remarks from the central bank's governor and deputy governor regarding the pace and scale of monetary tightening.
Despite the BOJ's rhetoric, elevated international oil prices and the substantial interest rate differential between the US and Japan continue to weigh on the yen. Even after Japanese authorities deployed a record $96.4 billion in currency intervention over the past month, investors remain vigilant about the possibility of further official action to support the currency. The yen has given back most of the gains achieved following the historic joint US-Japan intervention in July.
BOJ Governor Kazuo Ueda, speaking after the G20 meetings, said the central bank will factor in upside price risks when determining monetary policy, reinforcing market expectations for a rate hike at the policy meeting later this month. Overnight indexed swap data now shows the probability of a September increase at nearly 100%.
Governor Ueda's comments coincided with US Treasury Secretary Scott Bessent's call for the BOJ to take appropriate policy action, further fueling speculation of tightening. However, Japanese Finance Minister Katsunobu Katayama sought to downplay these views. According to meeting minutes released by the US Treasury on Tuesday, Bessent expressed strong support for Japan adopting decisive market and monetary measures to address the yen's apparent undervaluation, noting that the currency's weakness is intensifying domestic inflationary pressures in Japan.