Japan’s inflation data fuels bets of a Bank of Japan rate increase in September, lifting the yen against a weakening US dollar.
The Japanese yen strengthened against the US dollar, with USD/JPY falling to around 158.80 in Asian trading on Monday. The move follows stronger-than-expected inflation data, marking a second consecutive month of rising price pressures in Japan.
Market expectations for a Bank of Japan rate hike in September have grown, supported by Governor Kazuo Ueda’s recent hawkish remarks on policy normalization. Swaps markets now reflect a 20bps hike, while strategists note the inflation data has increased conviction in near-term tightening.
The US dollar’s decline was further pressured by US Treasury plans to double buybacks of longer-dated debt, aiming to curb rising bond yields. The Treasury signaled potential buybacks exceeding $4 billion, signaling concerns over elevated yields.