On Friday, Japan's currency appreciated for the fourth consecutive day, climbing as much as 1.1% to reach 140.29 per dollar, marking its strongest position since late December. In the United States, traders are increasing their expectations for a potential half-point rate cut by the Fed next week, following a Wall Street Journal report indicating that policymakers are considering this level of easing rather than a quarter-point reduction.
In contrast, officials from the Bank of Japan (BOJ) have indicated this week that additional rate hikes may be forthcoming. While most analysts predict that the central bank will maintain its current stance at next week's meeting, the comments from BOJ officials suggest that tightening measures could be implemented later in the year.
More than half of BOJ observers anticipate a rate increase in December, while traders are factoring in over 100 basis points of easing from the Fed this year.
Amidst narrowing interest rate differentials, the yen has rebounded significantly since hitting its lowest level in decades around mid-year, gaining over 14% since the end of June.
According to data from the Commodity Futures Trading Commission through September 10, asset managers are now the most optimistic about the yen since March 2021. The yen's gains were slightly reduced later in the day, trading around 140.93 in the New York afternoon session.
Additionally, some hedge funds are increasing their positions on yen strength in the options market, anticipating that the currency will continue its upward trend.
Brad Bechtel, global head of FX at Jefferies Financial Group Inc., noted that the yen could surpass 140 per dollar if the Fed implements a 50 basis point cut next week, a level not seen in over a year.
Takafumi Onodera, head of sales and trading at Mitsubishi UFJ Trust & Banking Corp. in New York, stated, "Given the anticipated volatility from the upcoming Fed and BOJ meetings next week, the yen could surpass the 140 mark. Currently, there is no compelling reason to sell the yen."