US Dollar/Japanese Yen FX Spot Rate

US Treasury Secretary Bessent made concrete demands on the government and the Bank of Japan, calling for accelerated rate hikes, a shift away from reflationary policy, and a halt to the yen's slide, and the dollar-yen rate strengthened sharply from its recent peak near 163 yen all the way to the 152-153 range. In a speech at a Texas university on the 8th, Secretary Bessent told yen-bearish speculators, "Bet on a weaker yen. I'm the bookmaker," signaling his intention to seize the initiative in the market and drive the yen higher and the dollar lower, throwing down a challenge to speculators. If Japan's long-term interest rates exceed 3%, institutional investors will sell US Treasuries and switch into Japanese government bonds, driving up US long-term rates and interest payment costs, so the Treasury Secretary appears to be trying to slow or stop Japan's rapid rate rises and the yen's depreciation. Some point to the possibility of a "mini Plaza Accord" that pushes the exchange rate into the 140-yen and 130-yen ranges, with the FOMC on September 15 and 16 and the Bank of Japan's monetary policy meeting on September 17 and 18 in focus. The Bank of Japan will likely raise rates by 0.25%, and if the Federal Reserve does not raise rates, the narrowing interest rate differential between Japan and the US will push the yen even higher. For now, the battle continues around the 152 level, which represents the halfway retracement of the yen's decline from 139.89 yen on April 22 last year to 163.95 yen on July 24 this year.

The Japanese Yen traded 0.3% higher against the US Dollar at near 157.60 in European trade as the US Dollar Index corrected 0.15% to near 101.88 from its yearly high of 102.20, with investors focused on the September US Nonfarm Payrolls report due at 12:30 GMT. OCBC analysts cited Bloomberg consensus expecting nonfarm payrolls to rise by 90,000 in September, down from 162,000 in August, with the unemployment rate forecast unchanged at 4.1%, and warned that the risk of an upside payrolls surprise appears to be increasing, which would reinforce expectations of further Fed tightening and support the USD. On the Yen front, Tokyo's Consumer Price Index for September came in stronger than projected, with Tokyo CPI excluding Fresh Food jumping to 2.7% year-on-year from 1.8% in August against a 2.4% estimate, while Tokyo CPI excluding Food and Energy accelerated to 3% year-on-year from 2%. On the daily chart, USD/JPY holds a mildly bullish near-term bias above its 20-period exponential moving average at 157.26, with immediate support at that level followed by the September 30 low at 156.38, and immediate resistance at the September 24 high of 159.04, above which the September 2 high at 160.39 is the key hurdle.

The core consumer price index for Tokyo, which excludes fresh food prices, rose 2.7% year-on-year in September, the highest in 10 months and above the forecast of 2.4%, accelerating from 1.8% in August. The figure exceeded the Bank of Japan's 2% target for the first time since January and was the fastest annual pace since November, when it stood at 2.8%. Meanwhile, the core-core CPI, which excludes both fresh food and energy prices and is closely watched by the Bank of Japan, rose 3.0% in September from 2.0% in August, the fastest since August 2025. The increase was driven in part by the gradual phasing out of subsidies for water and childcare costs, as well as higher prices for food, travel, hotels, and personal computers and tablets tracking chip prices. Although investors have scaled back expectations that the BOJ will raise rates at consecutive meetings this month, most of the market still expects the BOJ to lift its policy rate in December. The data is one of the factors the BOJ will use to revise its quarterly inflation projections at its monetary policy meeting on October 29-30. An analyst at Dai-ichi Life Research Institute said that even after stripping out temporary factors, the inflation figures remain strong, reflecting that businesses are beginning to pass on higher costs stemming from the weak yen and the Iran war, and that nationwide core inflation is likely to top 3% in the coming months, which would pressure the BOJ to raise rates again as early as December.

Japan's Ministry of Internal Affairs and Communications revealed on October 2 that the core consumer price index, or core CPI, for Tokyo, which excludes fresh food prices, rose 2.7% in September year on year, higher than the 2.3% analysts had expected and up from 1.8% in August. It was the first time since January this year that Tokyo's core CPI stood above the Bank of Japan's 2% inflation target. Meanwhile, the effects of some temporary government subsidy measures have begun to fade. The core CPI that excludes both energy and fresh food prices, a key underlying inflation gauge, jumped 3% in September, accelerating from 2% in August. The data may heighten the Bank of Japan's concern over the risk that inflation will remain on an upward trend and could exceed its 2% target, which would prompt the central bank to consider the appropriate timing for another interest rate hike, after it had just raised rates by 0.25% to 1.25%, the highest level in 31 years, at its meeting on September 18. The Bank of Japan's policy board said in a statement that the increase was driven by the risk that inflation could surge above the 2% target, and that the central bank aims to keep underlying inflation stable at around 2%, while signalling that it will continue to raise its policy interest rate and adjust the degree of monetary easing in line with changes in economic activity, prices and financial conditions.

Economy and Finance Minister Minoru Jōnai said at a press conference after the Cabinet meeting on the 2nd that the Bank of Japan's large-scale monetary easing, known as "unprecedented easing" or QQE, along with yield curve control, or YCC, have come to an end, and pointed out that "reflation policy in the narrow sense is already over." Jōnai has explained at a September press conference that "reflation policy in the Abenomics sense has ended." In financial markets, some interpret the large-scale fiscal spending that relies on the Bank of Japan's government bond purchases under monetary easing as reflation policy, so reporters asked Jōnai to confirm the true meaning of his statement that reflation policy is over. Jōnai said that "the current situation is not deflation," and repeated his long-held view that Abenomics was a reflation policy aimed at escaping deflation, and that it differs from Sanaenomics, the Takaichi administration's economic policy of boosting supply capacity through a growth strategy. At the same time, he also said that "part of Abenomics is being carried on."

The European Central Bank decided on the 11th to raise its policy interest rate by 0.25 percentage points. This is the first rate hike in two years and nine months, since September 2023. The euro-dollar pair was bought up to 1.2349 dollars before falling to 0.9536, but against the backdrop of US rate cuts and waning confidence in dollar-denominated assets, it has recovered to 1.2081 dollars toward January 2026. Meanwhile, the euro-yen pair fell to 114.43 yen before rising gradually, and has been bought up to 187.70 yen amid the ongoing yen weakness and dollar strength and expectations for an end to the war in Ukraine. However, the Bank of Japan decided at its June monetary policy meeting to raise rates from 0.75% to 1.0%, so risk-on euro buying and yen selling may be somewhat restrained.

The Bank of Japan, or BOJ, released a summary of board members' opinions from its September meeting, in which one member noted the need to accelerate the pace of interest rate increases if there are signs that domestic inflation is rising significantly faster. Other members also called for rate hikes, citing inflation risks. At the meeting held on September 17-18, the board raised the policy rate to 1.25%, the highest level in 31 years, as widely expected by the market. The increase came just three months after the hike at the previous meeting, marking an end to a cycle of rate increases spaced roughly six months apart since the BOJ ended its negative interest rate policy in March 2024. Kyodo News reported that at the September meeting, two of the BOJ's nine board members opposed the decision to raise rates, while some market investors expect the BOJ to raise rates again at its next meeting in October. In addition, another member called on the BOJ to take into account the effects of exchange rates, since the BOJ needs to show the market its determination to prevent prices from deviating upward, through flexible responses to overseas economic conditions and price movements.

Bank of Japan policymakers signaled increased support for faster monetary tightening, according to the summary of opinions from the central bank's September meeting. Several members advocated for quicker rate hikes or moving rates closer to the neutral target in the near term, with multiple policymakers noting that underlying inflation is approaching or at the 2% target. One member suggested accelerating tightening if inflation risks overshoot forecasts, and officials warned of ongoing price pressures and upside risks from elevated crude oil prices linked to Middle East tensions. The signals follow September's rate hike to 1.25%, after which the BOJ governor emphasized a heightened focus on preventing inflation from overshooting the central bank's targets. Despite the prospect of tighter policy, the Nikkei 225 Index jumped 2.4% to above 68,000 on Thursday, its highest level in six weeks, while the Japanese yen weakened past 158 per dollar.

At the government's Council on Economic and Fiscal Policy meeting held on the 30th, private-sector members expressed the view that the Bank of Japan's independence in conducting monetary policy should be respected. In their recommendations, they said it is important for medium- to long-term inflation expectations to stabilize at around 2%, and that the government and the Bank of Japan should share a common understanding of economic and price conditions and work closely together under their respective roles. Regarding fluctuations in long-term interest rates, they noted that Japan's primary balance is improving more than that of any other major country, and that the trend in the fiscal balance alone cannot explain the moves, expressing the view that the rise in long-term interest rates since 2024 has been driven by a variety of factors, including domestic and overseas economic and price conditions, monetary policy, and government bond supply and demand. They said it is important that, in the budget compilation process toward the end of the year, the overall fiscal picture, including full-year government bond issuance and market issuance, be clarified, and that highly transparent explanations of the assumptions and risks behind economic and fiscal management be provided to secure market confidence. On measures to combat high prices, they said consideration should proceed on cutting the consumption tax rate on food and beverages, providing support payments to ease the burden on workers, and reforming social security, while leaving room for reviewing subsidies for gasoline and for electricity and gas.

The weak yen was flagged as a concern at the Japan-US summit, heightening vigilance over currency intervention. On the 24th, the yen weakened into the 159 range amid rising US long-term interest rates, but on the 25th Finance Minister Satsuki Katayama said that President Trump had expressed concern about the weak yen at the Japan-US summit, briefly pushing the yen below 157. Prime Minister Sanae Takaichi also said on the night of the 25th that Trump had told her US trade was being hurt by the weak yen, and that she conveyed to him that, as a general matter, an undervalued yen is a problem. On the night of the 25th, Finance Minister Katayama held online talks with US Treasury Secretary Bessent, confirming that the yen's undervaluation is a problem, and Bessent conveyed the view that a strong yen reflecting the solid fundamentals of the Japanese economy is desirable. Vice Finance Minister for International Affairs Atsushi Mimura said in an interview with Reuters that the messages from Prime Minister Takaichi, Finance Minister Katayama, and the United States are very clear, and that his September remark that he is neither satisfied nor at ease with the current exchange rate is basically unchanged, with intervention vigilance pushing the yen higher into the mid-156 range.

The Japanese yen strengthened past 157 per US dollar and was the best-performing currency in the G10 group, gaining as much as 0.6% to touch 156.38 per dollar in Asian morning trading on September 30, 2026, after the Japanese government issued repeated warnings about the yen's weakness, with end-of-quarter capital flows also lending support. Atsushi Mimura, Japan's senior currency policy official, told Reuters that the prime minister and finance minister of Japan, as well as the United States, had sent very clear signals about the currency's weakness. Japanese Prime Minister Sanae Takaichi said US President Donald Trump expressed concern about the yen's weakness during their talks last week. Markets have increased bets that the Bank of Japan, or BOJ, may raise interest rates again as early as next month, after the BOJ lifted its policy rate to 1.25% earlier in September. The yen has now strengthened by about 3.6% since the start of this quarter, after the Japanese and US governments jointly intervened in foreign exchange markets in July to prop up the currency, marking the two countries' first joint intervention in 15 years.

Market strategist Ed Yardeni is blaming the unwinding of the Japanese yen carry trade for a global bond market rout and the return of the bond vigilantes. Yardeni dismissed the idea that surging global bond yields are solely the result of inflation fears tied to Middle Eastern conflicts and rising oil prices, noting that U.S. breakeven inflation rates remain surprisingly subdued. Instead, he pointed to the Bank of Japan raising its policy rate and blowing up the highly lucrative yen carry trade, which for years let institutional investors borrow yen at rock-bottom rates and buy higher-yielding assets worldwide, particularly U.S. Treasuries and other government debt. That artificial demand, he said, allowed governments to run massive budget deficits without their borrowing costs spiking, and the vulnerability was laid bare in the summer of 2024 when the BOJ raised rates just as U.S. economic data fueled expectations of Federal Reserve rate cuts, sparking a frantic automated unwinding and a cross-asset global selloff in early August 2024. Earlier on Tuesday, the U.S. 30-year Treasury yield jumped to its highest level since 2002, underscoring how far borrowing costs have climbed at the far end of the curve.

Japan's 2-year bond yield is closing in on the 2% mark, a level it has not reached in more than 30 years. The market is increasingly of the view that Japan's long battle with deflation is over and that the Bank of Japan needs to raise its policy rate to a restrictive level. The 2-year yield has doubled over the past 12 months and is now more than six times its level at the same time in 2024. The 5-year yield hit a record 2.43% on the 28th, and the 2-year, 1-month interest rate swap rate also rose to a record 2.5%. According to Tokyo Tanshi, the probability of a rate hike to a 1.5% policy rate in October, based on swap rates, is 36%, while a December hike is priced in as nearly certain. The timing of the next rate hike may depend on the results of the Bank of Japan's Tankan survey due on the 1st, and Takashi Fujiwara of Resona Asset Management noted that if capital investment in the Tankan proves solid, the view that a rate hike could come as early as October may gain strength.

Kasikorn Research Center, or KResearch, said the baht this morning stood at about 33.59-33.61 baht per dollar, compared with yesterday's market close of 33.59 baht per dollar, with the baht still moving in a weakening range, running counter to the dollar and rising US bond yields amid concerns over inflation pressure from oil prices after negotiations between the United States and Iran on the terms of opening the Strait of Hormuz ended without a conclusion. Iran, meanwhile, signaled that tensions could drag on until the US midterm elections. Yesterday, the 2-year US bond yield rose 8 bps to close at 4.93%, while the 10-year yield rose 8 bps to close at 5.24%, and this morning November-delivery BRENT was still trading above 106 dollars per barrel. KResearch estimates the baht's trading range today at 33.55-33.70 baht per dollar, with attention needed on the Middle East situation and global oil prices, foreign fund flows, and US economic data such as job openings and the labor turnover rate, or JOLTS, for August, and the September consumer confidence index. At the same time, signals from the yen also bear watching after Japanese authorities warned the market that they remain ready to step into the foreign exchange market if the yen weakens sharply or moves away from fundamentals.

A return of Japanese investment money to domestic markets is already underway, but it will still take time for the massive funds that have been invested overseas to flow back in earnest. The Bank of Japan raised interest rates at its monetary policy meeting through the 18th, and according to reports it also conducted a "rate check" in the foreign exchange market, but it remains unclear how far government bond yields will rise and how much further the BOJ will need to push rate hikes. At last week's BOJ meeting, two members voted against the move from a dovish standpoint, and the further decline in the bond market this week has only strengthened the sense of uncertainty about the outlook. The benchmark 10-year government bond yield has risen by about 2 percentage points in less than two years, exceeding 3% and reaching a roughly 30-year high, and an analysis by Barclays of Japan Securities Dealers Association data showed that investors were net buyers of Japanese government bonds by 480 billion yen last month. Meanwhile, according to estimates by HSBC, Japanese banks sold about 70 billion dollars of foreign bonds this year, a sharp reversal from net buying of 35 billion dollars last year. Life insurers, which hold total assets of 438.6 trillion yen, are seen changing their asset allocations only slowly, and Aaron Hurd of State Street Investment Management noted that a full-scale return of funds may not come until 2027.

Japan's finance minister said Prime Minister Sanae Takaichi is not a reflationist, pushing back against investor concerns about the government's spending plans and its influence on the Bank of Japan. Speaking exclusively to Bloomberg TV's Shery Ahn in Tokyo, the minister said Takaichi has explicitly instructed her to tell people overseas that she is not a reflationist and that she has great respect for the central bank's independence. On the yen, the minister said Japan will intervene in cases of disorderly conditions, excessively speculative moves, excessive volatility or a disorderly market, and that the stance of taking bold action remains in place even at this very moment. Asked about the fiscal picture, the minister said the current rise in government bond yields is not driven solely by factors in Japan and is not expected to last that long, adding that the government has already factored in some higher fiscal spending costs. On defense, the minister said the decision to revise the three key defense documents this year is not a response to international pressure, including from the United States, and that neither the Defense Ministry nor the United States has ever told Japan anything along the lines of the 3.5% of GDP figure Bloomberg reported.

The Japanese yen strengthened after comments from President Trump expressing concern about the currency's weakness, with Japanese Minister Kiuchi adding that Abenomics is over and super-low interest rates are no longer needed. The yen had been weakening toward levels that prompted reported verbal intervention at the back end of last week, and the remarks gave it a boost. The problem for the Bank of Japan is that even as it finally sounds more aggressive on its hiking cycle, the Fed and the ECB are also tightening, and if the BOJ hikes only once a quarter while others move faster, that will not help the yen or Japan's effort to avoid falling behind the curve. In Asia, Hong Kong stocks fell as markets judged the Trump-Xi summit delivered only the bare minimum, with a trade truce extension and niceties but few concrete deals so far. In bonds, rising real yields and energy price swings are weighing on the market, and with more supply coming, pressure for rates to go higher may continue unless oil prices fall.

The yen headed for its biggest daily gain in more than two weeks after Finance Minister Satsuki Katayama's latest comments on the currency kept traders on alert for the risk of intervention. The Japanese currency strengthened as much as 0.6% to 157.95 per dollar on Friday, outperforming all of its Group-of-10 peers. Katayama said US President Donald Trump shared concerns over the yen during a meeting with Prime Minister Sanae Takaichi earlier this week in New York, offering some relief after renewed dollar strength pushed it toward the key 160-per-dollar level, and she said she would continue to coordinate with her US counterpart Scott Bessent. Japan and the US carried out their first coordinated yen-buying intervention since 1998 this summer after the currency weakened beyond 160, and Japan spent a record ¥15.4 trillion, or $97.4 billion, intervening in the month through Aug. 26, according to Finance Ministry data. Moh Siong Sim, a strategist at Oversea-Chinese Banking Corp., said intervention risk should put a ceiling on further yen weakness and that the currency may be nearing a turning point as Trump's concerns point to deeper US-Japan coordination to support it.

Mr. Poon Panichpibool, a strategist at Krungthai GLOBAL MARKETS of Krungthai Bank, or KTB, said Krungthai Global Markets sees the baht at risk of two-way risk in the short term, depending on shifts in market players' views on the monetary policy outlook of the US Federal Reserve, or FED, and on developments in the highly uncertain situation in the Middle East. This means market players should adopt more diversified hedging strategies, especially options strategies. On the export front, analysts broadly assess that Thailand's August exports still benefited from the AI boom, but higher energy prices, along with imports of goods for building data centers and production for export driven by the AI boom, will keep import growth high, leaving Thailand's trade balance in continued deficit of about 3.6 billion dollars. For the intraday trading range, the baht may still be unable to clearly weaken past the resistance zone of 33.50 baht per dollar, while further appreciation may lack additional support until the Middle East situation clearly improves, allowing Brent crude prices to fall back to around 100 dollars per barrel or lower. Initially, the baht is seen as having support around 33.30 baht per dollar. Close attention should also be paid to the movement of the Japanese yen, after it weakened past 158 yen per dollar, raising the risk that Japanese authorities will conduct a check rate or even intervene in the yen. In the medium to long term, Krungthai Global Markets maintains its view that the FED has a chance of one more rate hike at its December meeting, before holding rates until the second half of 2027 and then gradually cutting them. This leaves room for the baht to gradually strengthen somewhat, since market players' views on the FED's rate hike outlook remain somewhat more hawkish than assessed, and the risk that the FED may hike faster and more than expected has risen, after energy prices risk continuing to climb if the Middle East situation heats up again and drags on longer than expected. Technically, judged by a trend-following strategy, the baht remains in an uptrend on the weekly time frame until it clearly weakens past the 33.50 baht per dollar zone. On the daily time frame, the baht remains in a downtrend until it can clearly strengthen back past the 33.00 baht per dollar zone.

Joseph Lavorgna, chief economist for the Americas at Sumitomo Mitsui Banking Corporation and an adviser to U.S. Treasury Secretary Bessent, said on the 23rd that he expects the Federal Reserve to raise interest rates three to four more times. He said that the single rate hike implemented at the Federal Open Market Committee meeting on the 16th, the first in about three years, would "change nothing" in financial conditions, and that he anticipates additional moves at the FOMC meetings in December and next year in January and March at least, with a possibility of continuing in April depending on economic conditions. On the next meeting on October 27 and 28, meanwhile, he analyzed that, coming just before the midterm elections on November 3, proceeding with a rate hike while President Trump is calling for rate cuts could amount to "a provocation toward the White House," and predicted the Fed would hold steady unless a sharp acceleration in inflation is confirmed. He also assessed Bessent's coordinated yen-buying intervention with Japan and Treasury buybacks aimed at curbing the rise in long-term U.S. yields as "two wins out of three," saying that while there had been some success in correcting the weak yen, the 10-year U.S. Treasury yield has risen well above 5 percent and is "probably too high compared with the level Bessent would want."

Former BOJ Policy Board member Makoto Sakurai, in an interview with Reuters, said he expects the Bank of Japan to continue raising interest rates every three months, with the policy rate reaching 2% by next June. The BOJ decided at its September 17-18 monetary policy meeting to raise the policy rate to 1.25%, the shortest interval of three months for an additional hike since the end of its ultra-loose policy in March 2024. Sakurai called this a major turning point in monetary policy conduct. With heightened tensions in the Middle East, crude oil import prices have risen 70% to 80% compared with before the U.S. and Israeli military strikes on Iran, and he believes that as companies pass on costs, headline CPI is highly likely to exceed 3% from the year-end through the fiscal year-end. He expects the BOJ to raise its inflation forecasts for both fiscal 2026 and fiscal 2027 in its October outlook report, and said that while the timing of the next rate hike will basically be December, a hike in October is also possible if the upward revision is substantial. Regarding this rate hike, U.S. Treasury Secretary Bessent commented on BOJ monetary policy for several consecutive days, creating an unusual situation in which the market almost fully priced in a hike at the September meeting, and Sakurai said it cannot be denied that the BOJ is being helped by U.S. Treasury Secretary Bessent.

Finance Minister Satsuki Katayama said on the 24th, regarding dealing with the yen's depreciation, that "the principle from the recent coordinated intervention by the Japanese and U.S. governments is still in effect." She made the remarks to reporters at the Ministry of Finance. On the other hand, she avoided commenting on the exchange rate, which has been moving around 158 yen to the dollar, saying, "As usual, it is not the case that I would make specific comments about levels." The Bank of Japan raised its policy interest rate to 1.25% at its monetary policy meetings on September 17 and 18, but the yen weakened immediately afterward, and according to related sources, the BOJ had proceeded with a "rate check," considered a preparatory stage for currency intervention, on the 18th.

Finnomena Funds has raised its positive view on risk assets after the Fed unanimously decided to lift its policy rate by 0.25% to a range of 3.75%-4.00%, the first hike in more than three years, while signalling at least one more increase this year. The tone, however, was less hawkish than the market had expected. Fed Chair Kevin Warsh chose to raise rates mainly to keep inflation stable, while the latest GDPNow estimate for the U.S. economy stands at 5.1%, reflecting an economy still resilient to high interest rates. Meanwhile, the Bank of Japan raised its policy rate by 0.25% to 1.25% per year, the highest since 1995, a factor supporting Japanese bank stocks, and it is expected to have little impact on exporters, as many companies have already priced in the risk of a stronger yen. Finnomena Funds recommends gradually accumulating three funds: LHSUPERAI, risk level 7, which invests across the entire AI infrastructure chain from upstream to downstream; OP11JAP, risk level 6, which selects 11 large-cap Japanese stocks set to benefit from the rate hike; and A-GRID, risk level 6, which invests in Smart Grid stocks. It sees this period as more of an opportunity than a risk, since equity market valuations have fallen back near their averages, making the risk-to-reward profile more attractive.

Market sources have revealed that the Bank of Japan conducted a rate check, in which it queries financial institutions about foreign exchange rate levels. The check took place from late at night on the 18th into the early hours of the 19th, ahead of Japan's string of national holidays, and during that window the yen rose about 1 yen from the upper 157 range to the upper 156 range against the dollar. The move is believed to have been aimed at restraining speculative yen selling, and a rate check is positioned as a preparatory step toward currency intervention by the government and the Bank of Japan. In overseas markets, caution is growing over possible currency intervention by Japanese authorities. On the 18th, the Bank of Japan decided to raise interest rates at its monetary policy meeting, but because two board members opposed the move and it was not a unanimous decision, expectations for an early additional rate hike receded, and yen selling and dollar buying advanced. In the London foreign exchange market on the morning of the 21st, the yen traded in the lower 157 range.

The Bank of Japan has gone ahead with its first rate hike in three months. The move is aimed at addressing upside risks to prices, but upward pressure on inflation remains strong, driven by soaring crude oil prices amid concerns over a prolonged Middle East situation and expanding demand related to artificial intelligence. At a press conference on the 18th following the monetary policy meeting, Governor Kazuo Ueda noted that inflationary pressure originating from high crude oil prices and other factors is likely to spread to a broad range of items, and expressed a sense of urgency that the underlying rate of inflation risks rising above the 2 percent price stability target. The domestic corporate goods price index rose 7.6 percent in August from a year earlier, exceeding 7 percent for the third straight month. According to Teikoku Databank, the number of food and beverage items scheduled for price increases in September reached 4,923, more than triple the figure a year earlier, and the annual total is expected to exceed 20,000 items. The government's support for electricity and city gas rates ending with September usage is also expected to push prices higher.

The yen surged into the 156 range in the foreign exchange market shortly before noon U.S. time on the 18th. The electronic edition of Nikkei reported that the Bank of Japan conducted a "rate check," asking market participants about exchange rate levels. A rate check is seen as a preparatory step toward currency intervention. At its policy meeting on the 18th, the BOJ raised its policy interest rate to 1.25 percent, a level last seen about 31 years ago, but two board members opposed the hike, and the yen had been sold in the market on the view that the pace of rate increases would be slower than expected. Governor Kazuo Ueda said at a press conference that "the policy phase has changed," signaling his intention to move preemptively in conducting policy, but some in the market also took the view that the United States, which raised rates on the 16th, was the more hawkish.

Bank of Japan Governor Kazuo Ueda said at a press conference following the monetary policy meeting on the 18th that the policy "phase has changed" as underlying inflation approaches 2%, and set anchoring inflation at the 2% target as a challenge for policy management. After this rate hike, following the one in June, the BOJ maintained the wording in its statement that financial conditions are "accommodative," and strong caution is emerging over the fact that the assessment of financial conditions has not changed despite repeated rate increases. Even after the policy rate was raised to 1% in June, financial conditions have not changed significantly, and real interest rates adjusted for expected inflation remain in negative territory at the one- and two-year horizons, while rising stock prices and a weak yen are also part of the accommodative financial environment. With this rate hike, the policy rate has exceeded the lower bound of the estimated range of 1.1% to 2.5% for the neutral rate based on the BOJ's estimate of the natural rate of interest, but some believe there is still a distance to the actual neutral rate. Regarding the possibility of a rate hike exceeding 25 basis points, Governor Ueda said "various possibilities exist depending on the inflation situation," and explained that "we cannot decide in advance to rule out a particular approach."

The Nikkei index on the Tokyo stock market closed up 882.70 points, or 1.38%, at 65,018.95 points today, September 18, supported by buying back into large technology shares that had been sluggish earlier, and the index briefly surged more than 2% during afternoon trading after investors took the view that the Bank of Japan, or BOJ, still has a gradual approach to raising interest rates. The BOJ decided to raise its policy rate by 0.25% from 1.0% to 1.25% at today's meeting, in line with market expectations. Shares leading the market higher included the nonferrous metals and electrical appliance sectors, while the electric power and gas sector and the oil and coal products sector declined. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, said that if the BOJ continues raising interest rates as planned, the direction of prices and interest rates will be stable, and that this factor will encourage businesses to decide to invest in expanding their operations. Meanwhile, Kyodo News reported that the investment mood also received additional support after Jensen Huang, chief executive officer of Nvidia, took a stance opposing the introduction of new stricter measures on the development of artificial intelligence, in contrast to senior executives at several AI companies in the United States who had earlier called for slowing down the development of such technology.

The dollar-yen exchange rate has adjusted since the start of September, and on the 7th it fell below 155 yen per dollar for the first time since February of this year. Given that the two rounds of yen-buying intervention this year, Japan's solo intervention during Golden Week and the joint U.S.-Japan intervention toward the end of July, did not manage to push the rate below 155, the view that the market has reached a turning point is likely to gain strength. Behind the upward pressure on the yen is growing expectation that the Bank of Japan will raise interest rates, and after the joint U.S.-Japan intervention at the end of July, pressure from U.S. authorities on the BOJ and the government to accelerate rate hikes has intensified. Around the time of the G20 finance ministers and central bank governors meeting, U.S. Treasury Secretary Scott Bessent met with BOJ Governor Kazuo Ueda and stressed the importance of formulating monetary policy appropriately and communicating its content clearly. Governor Ueda also said at a press conference after the G20 that the BOJ will thoroughly discuss rate hikes at every meeting, including the next one, and in the market, after a September hike, a pace of roughly once every three months is seen as the baseline, while consecutive hikes are also being contemplated depending on the yen's moves. If an acceleration in the BOJ's pace of rate hikes materializes, it would likely bring stability to the bond market while also making the yen more prone to strengthening in response to BOJ rate hikes.