Markets price an 80% chance of a Bank of Japan rate hike in September amid persistent inflation above the 2% target.
The USD/JPY pair declined to 159.45 in Asian trading on Wednesday as the Japanese Yen strengthened. Growing expectations of a Bank of Japan rate hike drove the move, with overnight index swaps pricing an 80% probability of tightening as soon as September.
Recent inflation data remaining above the BoJ’s 2% target and policymaker commentary fueled the hike bets. Japan’s upcoming National Consumer Price Index report on Friday may further influence expectations. However, fiscal concerns, including a proposed consumption tax cut, could limit JPY gains.
Traders also scaled back Federal Reserve rate hike bets after softer US jobs and inflation data, reducing support for the USD.