On Thursday (August 8th), the Japanese yen exchange rate once again became the focus of attention in the international foreign exchange market. Since the beginning of this week, the Japanese yen has experienced severe fluctuations, with a significant drop in the previous trading day and fragile market sentiment. Investors are weighing the possibility of lifting the carry trade while closely monitoring the interest rate path that the Bank of Japan may take.

The Bank of Japan unexpectedly raised interest rates last week, causing investors to withdraw from spread trading, which directly affected the trend of the yen. However, Vice President of the Bank of Japan, Shinichi Uchida, downplayed the possibility of a recent interest rate hike on Wednesday, causing the yen to fluctuate again against the US dollar after hitting a seven month high earlier this week. The summary of opinions from the July policy meeting released by the Bank of Japan on Thursday showed that some members called for the need to continue raising interest rates, with one member suggesting that interest rates should ultimately be raised to at least 1%. This statement is in sharp contrast to the opinion of Sanaichi Uchida, increasing market uncertainty.

Vasu Menon, Managing Director of Investment Strategy at OCBC Bank, pointed out that although the Bank of Japan may have temporarily suspended interest rate hikes, the process of policy normalization may continue in the coming months. He reminded investors that the market is still susceptible to negative news and other global uncertainties, and it may be too early to open champagne now.

Sharon Zollner, Chief Economist of ANZ Bank, and David Croy, Strategist, pointed out that even if the Federal Reserve's interest rate cuts meet market expectations and the Bank of Japan raises interest rates again, Japan's interest rates will still be much lower than comparable rates in the United States. They believe that carry trades are unlikely to end soon, but as investors reduce their risk positions, they may see more fluctuations in the USD/JPY.

Investors' focus now will be on next week's release of the US Consumer Price Inflation Report for July, as well as Federal Reserve Chairman Powell's speech at the Jackson Hole Economic Policy Symposium. Menon emphasized that investors need to be prepared for a bumpy journey, as there are many economic data between now and the next Federal Reserve meeting that may change the possibility of interest rate hikes.

From a technical perspective, the fluctuation range of the Japanese yen against the US dollar this week is 141.68 to 147.93, indicating the market's uncertainty in the short term. Japanese companies that are predicted to have an average exchange rate of 142.68 for this fiscal year may be eager buyers for a discount. Meanwhile, the bottom of the weekly average Hengyun area (formed after the intervention in 2022) is 140.78, which may provide some support for the Japanese yen.

The market's expectation of the Federal Reserve's interest rate cut in September is also affecting the trend of the Japanese yen. According to the FedWatch Tool from CME, traders expect the Federal Reserve to cut interest rates by 50 basis points at its next meeting in September, but also anticipate a 26.5% chance of a 25 basis point rate cut. This expected change may have an indirect impact on the Japanese yen.

The volatility of the Japanese yen exchange rate may continue in the short term. Market participants need to closely monitor the policy movements of the Bank of Japan, as well as global economic data and the interest rate decisions of the Federal Reserve. In such an uncertain market, it is particularly important to maintain a cautious and flexible trading strategy. At 15:33 Beijing time, the Japanese yen was quoted at 146.09 against the US dollar, and market participants are closely monitoring the next developments in order to capture more trading opportunities.