FOREX-Yen climbs on hawkish BOJ repricing

The yen extended ‌gains ​on Thursday after a sudden burst higher in the previous session, though traders stopped short of attributing the move to Japanese authorities and instead pointed to a hawkish repricing of domestic rate expectations. The yen rose to an intraday peak of 157.95 per dollar ‌in Asia, extending its 0.9% jump overnight that initially put markets on alert for any official intervention from Tokyo, though the scale and fleeting nature of the move suggested otherwise.

The Japanese currency's rally was broad-based, with the euro last down 0.38% to 183.27 yen, while sterling similarly fell 0.36% to 213.21 yen. "I believe there's little incentive for (the) Japanese government to intervene at ‌this moment," said Kazumasa Ishii, a strategist at UBS SuMi Trust Wealth Management, citing "limited" signs that dollar/yen could scale a new multi-decade high in the near term.

The renewed ‌strength in the yen follows hawkish comments from Bank of Japan (BOJ) board member Hajime Takata, who said on Wednesday the central bank should conduct interest rate hikes nimbly to counter intensifying inflationary pressures, rather than adhere to a fixed semiannual pace anticipated by markets. "(The) remarks are the strongest messaging we've heard from the board and reintroduces the idea of an expedited rate hike trajectory," Citi said in a client note, adding ⁠that the ​market is taking Takata's comments "more seriously".

A BOJ rate ⁠hike this month is nearly fully priced in by markets. Since a rare joint yen-buying intervention between the U.S. and Japan on July 31, the yen has struggled to find lasting support, coming under pressure from ⁠still-wide interest rate differentials, fiscal worries and a renewed spike in energy prices.

WAITING ON PAYROLLS In the broader market, the strength in the yen left the U.S. dollar on the back foot, with the ​euro up marginally to $1.1593. Sterling bounced from a three-week low and last bought $1.3489.

The New Zealand dollar rose 0.13%to $0.5860, having slid 0.67% on Wednesday following a dovish ⁠hike from the country's central bank, while the Aussie held near a more than three-month high at $0.7166. Against a basket of currencies, the dollar eased 0.14% to 99.46. The Canadian dollar extended overnight gains and stood at C$1.3833, ⁠after ​the Bank of Canadaheld rates on Wednesday, though it signalled its readiness to tighten policy to rein in inflation.

All eyes are now on Friday's U.S. nonfarm payrolls report, where analysts are forecasting an increase of 56,000 in jobs, following July's shock drop of 23,000, with unemployment holding at 4.1%. It would probably need a much weaker outcome to ⁠greatly lessen the risk of a September rate hike from the Federal Reserve, with markets now pricing in a 61% chance of a move.

"After Fed Chair (Kevin) Warsh's hawkish ⁠Jackson Hole speech, I think markets are back ⁠to the idea that the Fed is prepared to take action in the near term to bring inflation closer to target more quickly," said Carol Kong, a currency strategist at Commonwealth Bank of Australia. "Payrolls, I think, could come in solid again, given ‌the supply shocks like the lower ‌immigration and increased retirement... that would give another boost to FOMC rate-hike pricing."