The Japanese yen surged to its strongest level against the dollar since May and reached multi-month highs against other major currencies ahead of the Bank of Japan’s (BoJ) upcoming meeting. Anticipated actions, including a rate hike and reduced bond purchases, indicate a shift from the central bank’s longstanding monetary stimulus. This appreciation in yen was driven by the unwinding of yen carry trades as yield differentials could continue to shrink as monetary policy start to change. The yen’s strength was further supported by a broader market sell-off and the currency’s safe-haven appeal.

At the same time, Japanese government bond (JGB) yields continue to show volatility close to their highest levels this year amid growing expectations that the Bank of Japan could raise interest rates again when it meets next week, leaving market participants unsettled ahead of the meeting. The anticipation of BoJ’s potential policy shifts will likely keep the yen on its upward trajectory in the near term, while JGB yields might remain elevated, with the 10-year yield stabilizing above the 1.05% mark, driven by the unwinding of yen carry trades and broader monetary policy changes.