The yen strengthened to the 153 level against the dollar in Tokyo foreign exchange trading on the 8th, reaching its highest level against the greenback in roughly six months since February. Expectations for an accelerated pace of rate hikes by the Bank of Japan, along with wariness over additional yen-buying intervention by Japanese and U.S. authorities, are triggering yen buybacks. Selling spread across export-related stocks on concerns over deteriorating profitability, with the Nikkei Stock Average opening 556 yen lower at 65,843 before briefly extending losses to more than 600 yen.
The primary driver of the yen's appreciation is rising expectations for higher Japanese interest rates. The Bank of Japan will hold its monetary policy meeting on the 17th–18th. The market is now almost fully pricing in a 0.25 percentage point hike, which would lift the policy rate from the current 1.0% to 1.25%. The upward revision of April–June real GDP to an annualized 1.4% quarter-on-quarter growth from the preliminary 1.1%, along with July real wages rising 2.4% year-on-year, are being cited as justification for additional tightening.
The view that Japanese and U.S. authorities will not tolerate yen weakness is also supporting yen buying. Japan conducted a record ¥15.4 trillion (approximately $100.1 billion) in currency intervention between late July and August to support the yen. According to Ministry of Finance data, foreign securities holdings fell by a record $87.8 billion (approximately ¥13.5 trillion) as of end-August, and officials have acknowledged that intervention was one factor. Vice Finance Minister for International Affairs Atsushi Mimura said over the weekend that he remains vigilant on currency movements and is in constant contact with U.S. authorities, keeping the possibility of additional intervention on the market's radar.
Position unwinding by speculators and medium- to long-term investors who had bet on yen weakness is also gaining momentum. The yen carry trade—borrowing low-yielding yen to invest in higher-yielding overseas assets—is seeing deteriorating profitability as the Japan-U.S. interest rate differential narrows and the yen appreciates. If selling of overseas assets to buy back yen intensifies, it could trigger capital outflows from risk assets globally.
In the Tokyo stock market, selling was led by automakers and electronics manufacturers on the view that the stronger yen will pressure export earnings. Toyota Motor (7203.T) and Honda (7267.T) traded weakly, while Taiyo Yuden (6976.T) and Murata Manufacturing (6981.T) also declined. Semiconductor-related names such as Tokyo Electron (8035.T) and Advantest (6857.T) were also sold.
Meanwhile, buying emerged in retail and pharmaceutical stocks, which benefit from lower import costs due to the stronger yen. Nitori Holdings (9843.T), Ryohin Keikaku (7453.T), Otsuka Holdings (4578.T), and Daiichi Sankyo (4568.T) rose, providing support to the index. SoftBank Group (9984.T) also turned positive after an early decline, contributing to gains in the Nikkei. The Tokyo Stock Price Index (TOPIX) fell back.
In the South Korean market, the yen's appreciation is spilling over into the won. The won briefly touched 1,334.70 per dollar, its strongest level since October 2024. Gains in semiconductor stocks led by Samsung Electronics (005930.KS) and SK Hynix (000660.KS) supported the currency, with foreign investors posting net purchases of over ₩800 billion (approximately $596.5 million) on the KOSPI, marking a third consecutive session of inflows.
For South Korea, a stronger yen is a tailwind from the perspective of export competitiveness. In industries such as automobiles, machinery, and steel, where South Korean companies compete directly with Japanese firms in overseas markets, the price advantage that Japanese players enjoyed during the yen's weakness is narrowing. Hyundai Motor (005380.KS) and Kia (000270.KS) are cited as representative examples.
On the other hand, companies that import materials, components, and equipment from Japan face higher costs. In industries with high dependence on Japanese-made materials and equipment, such as semiconductors and precision machinery, movements in the won-yen exchange rate have a more direct impact on actual costs than the dollar-yen rate.
For South Korean retail investors and travelers, the stronger yen means higher costs for trips to Japan, as more won are needed for accommodation, dining, and shopping. This is a burden for travelers who had been taking advantage of the prolonged "super-weak yen" to visit Japan. Conversely, the relative affordability of South Korea travel for Japanese visitors could have a positive effect on South Korea's domestic tourism and retail industries.
Market views are divided on whether the current yen strength will immediately lead to large-scale unwinding of yen carry trades. Korea Investment & Securities said in a report dated the 8th that while it is true that incentives for liquidating yen carry positions are rising, a separate risk-aversion trigger would be needed for the kind of abrupt liquidation that could shake markets. The brokerage forecasts the dollar-yen rate to gradually decline to around 150 by year-end.
The focus going forward is on the BOJ's September meeting and U.S. inflation data. If the BOJ proceeds with the expected rate hike and signals the possibility of further tightening, the 150-yen level against the dollar will come into view. On the other hand, if U.S. consumer price inflation exceeds expectations and reignites speculation of Federal Reserve rate hikes, dollar strength could return and slow the pace of yen appreciation.
Among banking industry sources, there are voices suggesting that attention should be paid not so much to the yen's strength itself but to the speed of its rise. If the yen moves rapidly toward the 150 level in a short period, it could spill over into yen carry positions and Asian currencies broadly, potentially heightening volatility in the South Korean market as well.
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