On Wednesday, the Bank of Japan (BOJ) made a "surprise rate hike," and data showed that it had already intervened in the foreign exchange market with $36.6 billion in July. The yen may have completely escaped the threat of falling to its lowest point since 1990.

Following the monetary policy meeting of the Bank of Japan, it was announced that the interest rate would be raised by 15 basis points, bringing the policy rate to 0.15%-0.25%. This is the highest rate since December 2008 and the largest increase since 2007, contrary to market expectations that it would remain unchanged. At the same time, the BOJ decided to reduce its bond purchases by 400 billion yen per quarter, with the monthly bond purchase scale to be halved by the first quarter of 2026. BOJ Governor Haruhiko Kuroda "hawkishly" stated after the meeting that if the economy and inflation support it, they will continue to raise interest rates, and 0.5% is not a specific upper limit for the interest rate.

After the BOJ meeting, the yen's exchange rate surged, with the yen appreciating by more than 1% against all other G10 currencies during the session. The US dollar fell below 150.00 against the yen during the European stock session, and the decline continued to widen at the opening of the US stock market. The US dollar once fell below 149.70 in the early US session, setting a new high since March 19, with a daily drop of slightly more than 2%. It quickly rebounded above 150.00 and returned to above 151.00 at noon, still on track to fall by more than 6% in July, marking the largest monthly drop since November 2022.

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Monex USA foreign exchange trader Helen Given pointed out that many market participants had been preparing for a rate hike by the Bank of Japan, and while there was a possibility of action, few expected the BOJ to raise rates by more than 10 basis points. This unexpected rate hike has given a significant boost to the yen, especially considering that investors believe the Federal Reserve may start signaling a rate cut in September after Wednesday's meeting.

Some analysts and strategists believe that the ultimate rise of the yen stems from investors digesting the Bank of Japan's rate hike and Governor Kuroda's press conference remarks, but there are still many uncertainties about the long-term outlook for the yen. Wall Street Journal previously mentioned that, in the view of several analysts, the Bank of Japan's attitude still seems somewhat ambiguous, and the sharp fluctuations in the yen after the interest rate decision indicate that the central bank has not clearly defined its long-term policy path.

StoneX Financial foreign exchange trader in Singapore, Mingze Wu, commented that after digesting the remarks at Kuroda's press conference, European traders began to buy yen against the US dollar. The market seems unstable, and sometimes many traders are just waiting for a "go signal."

Mitsubishi UFJ Financial Group's chief foreign exchange strategist, Hirofumi Suzuki, said that this week the Federal Reserve will announce its monetary policy decision, and the US will also release a significant non-farm employment report. In the short term, due to the Bank of Japan's pressure on the yen, the yen against the US dollar may test the 150 level. If the action is in line with its economic and price prospects, the Bank of Japan would be willing to raise interest rates.

MUFG Bank's head of foreign exchange research, Derek Halpenny, stated that short-term momentum will certainly continue to push the US dollar against the yen lower, and if Federal Reserve Chairman Powell hints at a possible rate cut in September after the meeting, that could be enough to significantly push the US dollar against the yen below the 150 level before the weekend.

Bloomberg strategists believe that the yen still has more room to rise at its current position because the Bank of Japan's actions provide short-term upward momentum, even if its fundamental policy choices may ultimately have flaws. While raising interest rates, Kuroda also tried to express a hawkish stance, which should not be easily overlooked.

Malayan Banking's foreign exchange strategist, Alan Lau, believes that the Bank of Japan's rate hike on Wednesday seems to be preemptive because the Bank of Japan and Governor Kuroda now seem to be more confident in the economic and inflation situation, which is in stark contrast to their slower response in previous years when there were signs of a rebound in inflation. If the Federal Reserve can send a stronger signal to start an easing cycle, the US dollar against the yen may fall further this year.In addition to the "stealth interest rate hike," data released by the Japanese government on Wednesday also revealed signs of heavy intervention in the foreign exchange market in July. The media pointed out that the data from June 27 to July 29, released by the Ministry of Finance on Wednesday, is consistent with previous estimates from the Bank of Japan's accounts and currency brokers, all indicating that over the past month, the Japanese government has invested a staggering 5.5 trillion yen, approximately $36.6 billion, in intervention funds to support the yen.

On Monday of this week, Atsushi Mimura, the newly appointed top foreign exchange official and Vice Minister of Finance, stated that intervention remains a tool to combat speculation in the currency market. Although the recent depreciation of the yen has its pros and cons, the cons are becoming increasingly apparent, with the impact of rising energy and food prices on consumers and importers being one of the downsides of the yen's depreciation.

The media noted that after the suspected intervention by the Japanese government in July, both the Finance Minister, Shunichi Suzuki, and the Vice Minister of Finance, Masato Kanda, declined to comment on whether the Japanese government had intervened in the market, maintaining a strategy that leaves investors to speculate. Mimura's remarks seem to suggest that he may continue to adopt this stance.