On Friday, the Japanese yen continued to rally, and USD/JPY traded at about 148.86, down 0.31% for the day in the European session. The yen strengthened by 148.50 on Thursday, its best daily increase since May 11.
The yen seemed dead in the water three weeks ago. USD/JPY traded slightly under 162, the highest level in nearly 4 decades. The yen has been soaring since then and rose a massive 7.9%, including this week’s 3.1% gain.
This week, the Bank of Japan hiked interest rates to 0.25%. Although rates are still at low levels, the rate increase indicates that the BoJ has started to make the shift to normalization after ultra-loose accommodative policy lasting decades.
The BoJ also said it would decrease its bond purchases, which is also tightening policy. Investors have also become less enthusiastic about the US dollar seeing that a Sept. cut seems very likely and are seeking to move their assets elsewhere.
The US economy is showing signs of cooling, such as the July ISM manufacturing PMI this week, which showed the sharpest contraction since Nov. last year. This has pushed funds away from the dollar towards other safe-haven assets like the yen.
The BoJ rate hike this week showed that change is happening in Japan and today’s government’s annual white paper on policy supported that view.
