Yen price hits 7-month high

Rising interest rates in Japan, along with less optimistic US economic data, pushed the yen to its highest level since the beginning of the year compared to the USD.

On the afternoon of August 5, the Japanese yen rose 2.3% against the US dollar to 142.2 JPY per USD. This is the highest level since January. The upward trend of the Japanese yen started in July and accelerated last week.

The yen has risen 8% against the dollar over the past month, as Japanese authorities intervened in the currency market and the interest rate gap between the US and Japan began to narrow. On July 31, the Bank of Japan (BOJ) raised its benchmark interest rate for the second time this year, to around 0.25%, from the previous 0-0.1%. The agency also signaled that it would continue to raise interest rates if the economy develops as expected.

Japanese Yen strengthens against USD since early July 2024. Chart: Reuters

Meanwhile, the US Federal Reserve (Fed) is expected to cut interest rates in September. The market is betting that the US Federal Reserve (Fed) will cut interest rates by another 50 basis points (0.5%) at its September meeting. "I think that's too much. The US economy is showing signs of slowing down, but it's not that bad," Masafumi Yamamoto, a currency strategist at Mizuho Securities, told Reuters.

Analysts at Barclays said the yen was overbought. Meanwhile, Yamamoto said that according to the technical charts, the yen will continue to rise in the near future.

Interest rates in Japan have been low for nearly 20 years, making the yen an ideal target for the carry trade. This involves borrowing low-interest-bearing currencies and then selling them to buy higher-interest-bearing currencies. The money can then be saved or invested.

However, as Japan has raised interest rates twice this year, and the US and Europe have begun to cut interest rates, "investors are under pressure to sell other assets to repay their loans in Japanese yen," Russell Napier, co-founder of research firm ERIC, explained on CNBC . This has caused the yen to rise in value, and at the same time sparked a wave of sell-offs in global stock and cryptocurrency markets in the past few days.

In addition to the Japanese yen, many other factors are also affecting global financial markets. Data released late last week showed that the US job market in July was not as strong as expected. Profit reports from many US technology giants also fell short of market forecasts. Concerns about the health of China - the world's second largest economy - are also rising.

The Dollar Index, which measures the greenback against a basket of major currencies, is down 0.4%. The Swiss franc rose more than 1% to 0.84 francs per dollar today. The euro also rose 0.2%. One euro is now worth $1.09.