The Japanese yen has risen by nearly 4% over the past four weeks, reaching 153.49 per dollar on Monday. This follows a seven-month high of 152.89 recorded last week. Market participants have shifted their stance, becoming net-long on the currency for the first time since February.
The Federal Reserve is expected to announce a rate decision this Wednesday, with traders estimating an 86% probability of a rate hike according to the CME FedWatch tool. Analysts at MUFG suggest that a quarter-point increase is already reflected in market prices, though further strengthening of the yen may require signals of more aggressive future hikes.
The Bank of Japan is scheduled to meet on Friday. Analysts at TD Securities warn that if the central bank decides against further rate hikes in October and December, the exchange rate could return to the range of 157 to 160 yen per dollar. Meanwhile, the U.S. dollar index remains at 99.15.
Global financial institutions are monitoring the situation as hedge funds adjust their carry trade positions. Beyond central bank policies, capital flows are being influenced by asset allocation shifts at the Government Pension Investment Fund, which is pulling capital back into the Japanese currency.
