In the foreign exchange market on the 4th, the yen traded in the upper 156 range against the dollar. Amid expectations of accelerated rate hikes by the Bank of Japan and a retreat in pricing of US rate hikes, moves to seek further yen appreciation are likely to intersect with selling of the yen as a reaction to the rapid rise. In a speech on the 3rd, Federal Reserve Board Governor Waller said he would be prepared to support keeping the policy rate at current levels if inflation continues to improve toward the 2% target. This led to a retreat in pricing of a September US rate hike in short-term money markets, and in the New York foreign exchange market, the yen briefly rose 2.2% from the previous day's close to 155.30, its strongest level since August 3. Takeshi Yamamoto, a researcher at Sumitomo Mitsui Trust Bank, noted that Waller's remarks corrected hawkish pricing, and sees further upside risk for the yen if the US employment report due out over the weekend is weak. Expectations of accelerated BOJ rate hikes are also supporting the yen, with the market almost fully pricing in a September hike and expecting a total of two hikes by January next year. On the other hand, Hisatake Hasegawa, market economist at Mizuho Bank, said the sharp yen rally was unexpected, but added that rate hike pricing is overdone and the yen's appreciation will not be one-sided. Bonds are expected to rise, with Kazuhiko Sano, chief bond strategist at Tokai Tokyo Securities, pointing out that bond buying will lead in the morning on the back of falling US yields, with a wait-and-see stance likely to strengthen ahead of the US employment report.
BOJ rate hike expectations and falling US yields lead to lower JGB yields, so bond prices rise but yield falls.
Waller's dovish remarks reduce US rate hike expectations, pushing US yields down.
