Markets now price an 80% chance of a Bank of Japan rate increase in September amid spillover from higher Japanese bond yields.
Higher long-term Japanese government bond yields are strengthening the yen against the US dollar, driven by spillover effects into global curves. The shift reflects growing expectations of a Bank of Japan rate hike in September, with implied odds rising to 80% from 50% earlier in August.
Concerns over yen weakness persist despite recent Japan-US currency interventions. Analysts note the BoJ remains behind the curve, though policymakers’ appetite for further tightening remains uncertain. A sustained yen rally hinges on a more aggressive BoJ hiking path, such as quarterly rate increases through 2027.
OCBC strategists maintain a 2026 USD/JPY target of 163 but warn the yen’s status as a low-yielding funding currency must shift for durable appreciation. Persistent fiscal deficits and AI-driven corporate financing needs are also contributing to higher global yields.