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Yen gains as BoJ tightening bets and GPIF shift speculation hit USDJPY

Falling US Treasury yields and a dip in the Fed tightening odds for September from 70% to 62% coincided with USD retreat and an August GPIF meeting that sparked speculation of a move toward domestic bonds.

Reported · Written up by our desk · Major Pairs

The US dollar weakened against the yen, with USDJPY falling sharply as markets priced in a more aggressive Bank of Japan stance and renewed speculation around possible Japanese currency actions, Action Forex reported. The backdrop included falling Treasury yields and a reduction in the probability of Fed monetary tightening in September, from 70% to 62%. US data also pointed to cooling momentum, with ADP’s private sector employment growth in August slowing from 44,000 to 38,000, below forecasts, while New York Fed President John Williams said there was no need for tightening at the upcoming FOMC meeting.

Action Forex said expectations for the BoJ shifted after a board member, Takata Hajima, suggested the central bank might consider an exceptional rate hike at its September meeting. The report noted that investors had been looking for a 25 basis point tightening with odds near 90%, and that a lower 50 basis point odds outlook and related repricing contributed to selling in USDJPY.

Separately, the yen received support from speculation linked to the Japan Government Pension Investment Fund, Action Forex said. It cited an extraordinary August meeting of GPIF management that was the first in seven years during a holiday month, prompting beliefs that GPIF could shift its portfolio toward domestic bonds, whose yields have risen to the highest level since 1996, a change the report said could drive capital outflows and weigh on USDJPY.

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