Yen Surges to 153 Per Dollar, Highest in Six Months, as Hedge Funds Unwind Shorts

BOJ Rate-Hike Cycle Gains Momentum

Yen Could Strengthen Further if Middle East Tensions Ease

The yen surged into the 153-per-dollar range, reaching its strongest level in about six months, as expectations grew that U.S. and Japanese monetary authorities could take concrete steps, including joint intervention, to curb yen weakness. Prospects for faster Bank of Japan rate hikes also supported the currency. The yen's advance is gathering momentum as not only hedge funds but also medium- to long-term investors unwind short-yen positions.

In Tokyo foreign-exchange trading on Sept. 8, the yen at one point strengthened into the 153-per-dollar range. That marked its strongest level since mid-February, about six months ago. The dollar had traded in the 155.50-yen range at 5 p.m. the previous day, but continued yen buying pushed it through 154 and then into 153.

The yen also broke through 155 per dollar, a psychological threshold it had failed to surpass even during yen-buying intervention by the Japanese government and the Bank of Japan in late April through May and again in July. In the market, some see the move as more than short-term speculators covering positions, signaling a broader turn in the underlying trend of selling the yen.

A Mitsubishi UFJ official said momentum is shifting, with not only hedge funds but also investors with a medium- to long-term horizon unwinding positions that involved selling the yen and buying the dollar.

BOJ Rate-Hike Bets Gather Pace

The yen's strength is being driven in part by expectations for policy changes by U.S. and Japanese monetary authorities. U.S. Treasury Secretary Scott Bessent recently reiterated his strong support for Japan taking firm market and financial policy measures to address what he described as the yen's sharp undervaluation. Markets are increasingly alert to the possibility that the two countries could take specific action, including joint foreign-exchange intervention, to correct yen weakness.

Expectations for additional BOJ rate hikes are also supporting yen buying. Markets have almost fully priced in a 0.25 percentage-point increase at the central bank's monetary policy meeting on Sept. 17-18. Views are also spreading that the BOJ could continue raising rates roughly once every three months, or that the terminal policy rate could end up higher than previously expected.

Expectations that tensions in the Middle East will ease also weighed on the dollar. Iran's Foreign Ministry said on Sept. 7 that talks with Oman over a temporary shipping route through the Strait of Hormuz were in their final stage and that an agreement could be reached within days. That has reduced demand for the dollar as a haven during the Middle East crisis.

With short-yen positions already heavily built up, traders see policy expectations and easing Middle East tensions combining to accelerate the currency's rise. Still, the next move in the exchange rate will depend on the actual pace of BOJ rate hikes, the response from U.S. and Japanese authorities, and changes in the Middle East situation.

Choi Man-su, Tokyo correspondent, Korea Economic Daily bebop@hankyung.com