The Japanese yen held onto most of its recent gains against the US dollar on Friday. The currency is now heading for its strongest weekly performance in more than a month.
Traders have increased bets that the Bank of Japan could take a more hawkish stance at its upcoming policy meeting. At the same time, global currency markets are waiting for the latest US nonfarm payrolls report.
Yen Heads for Strongest Week Since July
The Japanese yen strengthened to as much as 155.25 per dollar during morning trading. That level was close to the 155.20 peak reached last month following the July intervention.
The currency later gave back some of those gains and traded near 155.71 per dollar.
The yen is currently on track for a weekly gain of around 2.5%. That would mark its strongest weekly advance since late July.
During that period, Japan and the United States carried out a rare joint currency intervention aimed at slowing the yen’s sharp decline.
Markets Increase Bets on a Hawkish Bank of Japan
There has been no clear evidence of fresh official intervention in currency markets.
Instead, analysts believe the yen’s latest rally reflects growing expectations that the Bank of Japan could adopt a more hawkish policy stance than markets previously anticipated.
The Bank of Japan is scheduled to hold its next policy meeting on September 17 and 18.
Masahiko Loo, senior fixed income strategist at State Street Investment Management in Tokyo, said the move appears to reflect a broader reassessment of Japan’s monetary policy outlook rather than a simple short squeeze.
Markets are increasingly considering the possibility that the Bank of Japan could continue normalising monetary policy into 2027.
Intervention Risk Remains in Focus
Japan’s top currency diplomat, Atsushi Mimura, said on Friday that authorities remain alert to movements in foreign exchange markets.
He also confirmed that Japanese officials remain in regular contact with US authorities.
The comments kept traders focused on the possibility of another yen-buying intervention if the currency experiences renewed weakness.
Dollar Flat Ahead of US Payroll Data
Meanwhile, the US dollar remained relatively stable ahead of key US economic data.
The dollar index, which tracks the greenback against a basket of major currencies, was flat near 99.01.
The euro was also little changed at around $1.1625, while the British pound traded near $1.3527.
The dollar is currently heading for a weekly decline of approximately 0.7%.
US Jobs and Inflation Data Take Center Stage
Investor attention is now turning toward the latest US nonfarm payrolls report.
The data will be closely watched ahead of the Federal Open Market Committee meeting scheduled for September 15 and 16.
US inflation data will also be released next week, adding another important signal for Federal Reserve policy.
Federal Reserve Governor Christopher Waller said on Thursday that he was leaning toward keeping interest rates unchanged at the upcoming meeting if inflation data continued to show easing price pressures.
Following his relatively dovish remarks, traders reduced expectations for a September rate increase.
Market-implied probabilities of a rate move this month fell back to around 50%.
Oil Prices Add to Inflation Concerns
Investors are also monitoring geopolitical tensions in the Gulf and their potential impact on global inflation.
Brent crude futures remained elevated above $95.52 per barrel following US strikes on Iran earlier this week.
Higher energy prices could complicate the inflation outlook and influence future central bank decisions.
New Zealand and Australian Dollars Edge Higher
The New Zealand dollar gained around 0.2% to $0.5892.
The move followed the Reserve Bank of New Zealand’s decision on Wednesday to raise its cash rate by 25 basis points to 2.75%.
The central bank also signalled that further monetary tightening could follow.
The Australian dollar rose around 0.1% to $0.7206.
Bitcoin Slips Below $81,000
Cryptocurrency markets were slightly weaker.
Bitcoin fell around 0.3% and was last trading near $80,995.51.
