The Japanese yen has soared by more than 2% against the dollar amid speculation the Bank of Japan is set to raise interest rates.
The latest jump on Thursday lifted the yen to its highest level against the dollar in a month, at 155.57, and followed a 0.9% move the previous day.
Global markets remain jittery after this week’s dramatic government bond sell-off – caused by fears of a fresh inflation increase as a result of higher oil prices.
Investors have been reassessing their expectations for the future path of interest rates, in Japan and across other major economies.
Remarks by a Bank of Japan policymaker, Hajime Takata, suggesting it needs to move more “nimbly”, appeared to have heightened the prospects of a decisive move.
The chief executive of the financial adviser deVere, Nigel Green, said the scale of the yen appreciation over such a short time period underlined the febrile state of markets. “Markets this jumpy don’t need a shock to move hard, a rumour is enough,” he said.
Citi said in a note to clients that Takata’s remarks were the “strongest messaging we’ve heard from the board and reintroduces the idea of an expedited rate hike trajectory”.
The Bank of Japan has been incrementally raising rates for the past two years, after the economy finally shrugged off decades of deflation, or falling prices – but its main policy rate was left unchanged at 1% in July.
Markets now believe there is a 77% chance of a rate rise at the BoJ’s next meeting, which starts on 17 September.
Commenting on the latest market moves, Japan’s vice-finance minister for international affairs, Atsushi Mimura, said he was “neither satisfied nor reassured”, and policymakers “remain on a state of heightened alert”.
The global bond market sell-off – pushing up the yield, or interest rate, on government borrowing – intensified earlier this week after the US Federal Reserve chair, Kevin Warsh, used a speech last Friday to indicate that he was determined to bring inflation back to target.
Warsh had previously baffled some investors by withdrawing the Fed’s approach of signalling future rate moves, known as “forward guidance” – but in Friday’s speech at the central bankers’ conference in Jackson Hole, he said that if inflation did not move towards the 2% target the Fed would have “more to do”.
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The dollar weakened on Thursday after the Fed governor Christopher Waller indicated he was leaning towards keeping interest rates steady at this month’s meeting of Fed rate-setters.
“I’m going to paraphrase John Lennon here: ‘give disinflation a chance’. We can wait one meeting,” Waller told Reuters.
The dollar dropped further against the yen after his comments, and was also weaker against the pound and the euro.
The bond sell-off appeared to have eased on Thursday, with yields on 10-year UK government bonds, known as gilts, hovering at about 5.1% in morning trading – having touched the highest level since 2008, close to 5.3%, earlier this week.
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