On Wednesday, the yen rose above its key 100-day moving average against the dollar for the first time since mid-March and breached the psychological 155 level, with technical indicators suggesting the momentum could continue. The yen's appreciation led to the unwinding of global carry trades, with the Australian dollar, New Zealand dollar and peso all sliding 1% against the yen.

USD/JPY falls below key level

The yen has gained more than 4.5% since it hit a near 40-year low on July 3. The gains were fueled by rounds of suspected intervention by Japanese authorities on July 11 and 12, as well as comments about the yen from Trump and senior Japanese politicians.

In an interview with Bloomberg Businessweek, Trump said the United States faces a "huge currency problem" because of the weakness of the yen, raising the possibility that he could take steps to weaken the dollar if he wins this year's election.

Ultra-low interest rates in Japan in recent years have made the yen a favored source of funding for carry traders, who borrow in yen to invest in higher-yielding currencies. That trade has seen a wave of unwinding as investors bet on further rate hikes and the potential for further intervention.

Toshimitsu Motegi, secretary-general of the ruling Liberal Democratic Party, this week joined Digital Minister Taro Kono in calling on the Bank of Japan to raise interest rates to curb yen weakness.

“The comments from LDP lawmakers Kono and Motegi heightened caution about a possible BOJ rate hike,” said Keiichi Iguchi, senior strategist at Resona Holdings Inc. in Tokyo. “Another BOJ rate hike after suspected yen intervention earlier this month could mark the end of yen weakness.”

Overnight index swaps show a 33% chance the Bank of Japan will raise interest rates by 15 basis points when it ends its two-day policy meeting on July 31.

Meanwhile, Japan's benchmark 10-year bond yield rose 1 basis point to 1.07% on Wednesday, while the 40-year bond yield jumped 4.5 basis points to 2.465% after weak demand at an auction of that maturity.

While only about 30% of Bank of Japan watchers expect the central bank to raise interest rates on July 31, more than 90% see the risk of a hike, according to a Bloomberg survey.

The article is forwarded from: Jinshi Data