On Thursday (September 12), during the Asian trading session, USD/JPY rebounded to around 142.95 before suddenly plunging approximately 70 points to 142.25. This volatility occurred after Bank of Japan board member Naoki Tamura made hawkish comments, stating that Japan must gradually raise short-term interest rates to above 1% in the second half of the fiscal year 2026 to achieve a stable inflation target.
Tamura's remarks sparked a discussion about the pace of interest rate hikes by the Bank of Japan. He noted that the market's view on the rate hike path is rather slow, but if this continues, the risk of rising inflation increases. Therefore, the gradual increase in interest rates has become a focal point for him.
This hawkish stance had a direct impact on the Japanese financial market; Japan's 10-year government bond futures once fell 0.2%, and the Nikkei 225 Index also saw its gains reduced. Meanwhile, USD/JPY plummeted significantly from its intraday high, indicating support for the yen in the market.
Prior to this, another Bank of Japan board member, Junko Nakagawa, also reiterated that if the economy and inflation meet expectations, the Bank of Japan will continue to raise interest rates, while emphasizing that the current financial conditions will remain accommodative. She highlighted the need for the central bank to particularly focus on the risk of rising prices.
Despite the heightened expectations of rate hikes, the market's reaction to the yen was rather cautious. FXStreet analyst Haresh Menghani noted that Naoki Tamura's comments reaffirmed market expectations for a rate hike in 2024. USD/JPY continued its recent trend of volatility, reaching a high of 142.55 after the release of U.S. CPI data, but later fell back, closing at 142.28, with a decline of nearly 0.1%.
As Bank of Japan officials gradually release signals of rate hikes, the market will continue to closely monitor changes in Japan's future monetary policy, especially regarding long-term interest rate adjustments before the fiscal year 2026.
