Yen Extends Gains as BOJ Rate Hike Bets Rise

The Japanese yen strengthened further on Thursday, extending its sharp overnight rally as hawkish Bank of Japan signals fueled expectations for faster interest rate hikes.

The yen climbed to an intraday high of 157.95 against the U.S. dollar during Asian trading after jumping 0.9% in the previous session. The sudden move initially raised speculation about possible Japanese government intervention, although traders said its limited scale and short duration made official action unlikely.

The yen also advanced against other major currencies. The euro fell 0.38% to 183.27 yen, while sterling declined 0.36% to 213.21 yen.

Kazumasa Ishii, a strategist at UBS SuMi Trust Wealth Management, said there was little incentive for Japanese authorities to intervene because signs of dollar-yen reaching a new multi-decade high remained limited.

Instead, traders focused on comments from BOJ board member Hajime Takata, who said Wednesday that the central bank should raise interest rates flexibly as inflation pressures intensify rather than follow the semiannual pace markets had expected.

Citi described Takata's remarks as some of the BOJ board's strongest recent messaging, saying they revived expectations for an accelerated rate-hike path. Markets are now nearly fully pricing in a BOJ rate increase this month.

The yen has struggled to sustain gains since the rare joint U.S.-Japan yen-buying intervention on July 31, pressured by wide interest-rate differentials, fiscal concerns and higher energy prices.

Elsewhere, yen strength weighed on the U.S. dollar. The euro edged up to $1.1593, while sterling recovered to $1.3489. The dollar index slipped 0.14% to 99.46.

The New Zealand dollar gained 0.13% to $0.5860, the Australian dollar traded near a three-month high at $0.7166, and the Canadian dollar strengthened to C$1.3833 after the Bank of Canada held rates but signaled readiness to tighten policy if necessary.

Attention now turns to Friday's U.S. nonfarm payrolls report. Economists expect 56,000 jobs to be added after July's 23,000 decline, with unemployment steady at 4.1%. Markets currently price a 61% probability of a Federal Reserve rate hike in September following Fed Chair Kevin Warsh's hawkish Jackson Hole remarks.