Investors are rushing to unwind yen carry trades, pushing the yen up more than 2% to 155 yen per dollar on Thursday (September 3), its strongest level in a month, amid growing expectations that the Bank of Japan (BOJ) will raise interest rates this September after the BOJ governor and senior officials sent clear signals. Data from the Chicago Mercantile Exchange shows that the volume of call options on the yen-dollar pair expiring this month is 2.5 times higher than put options, reflecting a more bullish view on the yen. The yen's strength has been supported by remarks from BOJ Governor Kazuo Ueda and BOJ board member Hajime Takata signaling tighter monetary policy. Analysts at Nomura note that investors are gradually closing carry trades funded by the yen, and interest in holding the yen against G10 currencies has increased significantly in the medium term. Meanwhile, Japan's two-year bond yield has risen about 14 basis points this week, and interest rate swap markets are pricing in a 0.25% rate hike by the BOJ at its September 18 meeting, with nearly three more hikes expected by July 2027, indicating a significant acceleration in tightening compared to the average of two hikes per year since early 2024.
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