155 held through two rounds of intervention

The USD/JPY fell below the lower end of our forecast range of 155 on 7 September. The pair was trading below 154.50 as of early trading on 8 September. The catalyst for the sharp USD/JPY declines that have occurred intermittently recently remains unclear. However, the break below 155.50 on 7 September, which had marked the lows following both the intervention during the Golden Week holidays and the intervention at the end of July, appears to have triggered a further decline of around 1 yen.

Several factors combine to support yen buying

Several factors have combined to change the tone of the USD/JPY since the middle of last week. The first was a series of comments from US Treasury Secretary Scott Bessent around the G20 regarding Japan's fiscal and monetary policy. For example, at his post-G20 press conference on 1 September, Bessent said Japan should move away from its reflationary policies. On 31 August, he also said in a media interview that he was confident the Japanese government and BOJ would take steps that would lead to a stronger yen.  The timing was particularly striking because ministries had just submitted FY27 budget requests totaling JPY143tn, which was well above the JPY122tn initial budget for the current fiscal year and emblematic of the government's expansionary fiscal stance. Bessent's remarks may simply have happened to coincide with the release of the aggregate request figure because of the timing of the G20, but that coincidence arguably made them all the more powerful. Some US media also reported that during his visit to Japan in May, Bessent had vented his frustration to Finance Minister Satsuki Katayama over the direction of Japanese economic policy. Such reports provided exactly the kind of story likely to attract the attention of overseas market participants, regardless of their accuracy. The coordinated intervention at the end of July is itself widely viewed as having been undertaken at Japan's request, as suggested by comments from President Donald Trump. There therefore appears to be a perception that Japan cannot simply ignore US demands given it has asked Washington for cooperation. Taken together, it appears that Bessent's comments were forceful enough to give overseas investors reason to position for a shift away from Japan's reflationary policies.

A second factor was growing expectations that the BOJ could accelerate the pace of rate hikes. Bessent met Governor Kazuo Ueda on the sidelines of the G20, a meeting formally disclosed by the US Treasury. According to the Treasury, Bessent "emphasized the importance of sound formulation and communication of monetary policy to anchor inflation expectations and avoid excess exchange rate volatility." He also "expressed strong support for Japan's decisive market and monetary steps to address the substantial undervaluation of the yen and noted the role of yen weakness in contributing to domestic inflationary pressures in Japan." Ueda subsequently said at his post-G20 press conference that "a rate hike will be discussed thoroughly in every meeting, including the next one" implicitly keeping a rate hike at the 17-18 September meeting on the table. BOJ policy board member Hajime Takata then went a step further at a meeting with local business leaders on 2 September, saying the Bank needed to "conduct rate hikes nimbly" without being "bound by particular intervals or ranges anticipated in the markets." Although he later pushed back against the idea of a larger hike at the upcoming meeting, his comments nevertheless prompted markets to consider not only a faster pace of tightening but also the possibility of larger individual moves. Again, Bessent's comments appear to have provided the underlying catalyst that allowed these expectations to gain traction.

A third factor was renewed speculation about a possible change to the Government Pension Investment Fund's asset allocation. GPIF held a Board of Governors meeting on 21 August, and the agenda released on 31 August included a report on discussions by the Basic Portfolio Review Project Team. Speculation over a portfolio shift had already surfaced in July, when Finance Minister Satsuki Katayama said the government wanted to explore ways to encourage the GPIF and other pension funds to invest more in Japanese financial assets. The August Board of Governors meeting was reportedly the first held in that month in around seven years, and the inclusion of the basic portfolio review on the agenda appears to have revived expectations that GPIF may be seriously considering changes to its asset allocation. GPIF manages roughly JPY300tn of assets, meaning even a 1% change in its portfolio allocation would have a meaningful market impact. This appears to have brought the issue back into focus. Details of the Board of Governors' discussion will be released in the meeting summary several months from now. Until then, the market can do little more than speculate about what was discussed.

Dollar buying is also losing momentum

In addition to these Japan-specific factors supporting yen buying, there also appears to have been a shift in expectations of Fed rate hikes, which have been one of the main reasons to buy the dollar in recent months. The August employment report released on 4 September delivered a positive surprise, with nonfarm payrolls rising by 162,000 MoM. This led to a modest recovery in expectations of a rate hike but did not trigger a strong bout of dollar buying, possibly partly because Fed Governor Christopher Waller and other officials who spoke last week indicated that they wanted to wait for the CPI, due on 11 September, before reaching a decision. The employment report also showed wage growth slowing to 3.1% YoY, continuing its gradual downward trend. Viewed through the wage-price cycle, what the BOJ would describe as underlying inflationary pressure does not appear particularly strong. In any event, the prevailing view appears to be that a firm conclusion will have to wait for the CPI data. President Trump also called on the Fed to cut rates in a social media post, apparently timing his comments to coincide with the employment report. He went beyond simply demanding a rate cut, threatening that the US would stop trading with countries with which it runs trade deficits if the Fed failed to lower rates. Recent comments from Fed officials suggest that rate cuts are not even under consideration, and a cut at next week's FOMC meeting would be extremely difficult to justify. Halting trade with countries with which the US runs a trade deficit would also have enormous consequences for the US economy, and it is unclear how seriously Trump intends to follow through. However, his comments suggest a determined effort to push back against further rate hikes. This has weighed on expectations of Fed tightening and contributed to broad dollar selling, including against currencies other than the yen, alongside the recent yen buying.

Too early to call a trend reversal

The USD/JPY broke below the psychologically important 155 level on 7 September, when US markets were closed for the Labor Day holiday. From a technical perspective, the pair also briefly fell below the 38.2% retracement of its rise from the April 2025 low of above 139.50 to the July 2026 high of just below 164, at above 154.50. This brings the January low of below 152.50 and the 50% retracement level of above 151.50 into view. The pair could fall further toward these levels if the unwinding of positions built up on expectations of further yen weakness continues. At a minimum, unless the USD/JPY quickly recovers above 155, the market could shift into a new range in which 155 is viewed as the upper end. However, we think it is too early to conclude that the broader market narrative has changed or that the USD/JPY has definitively entered a new trading range. The recent yen buying has been driven partly by expectations surrounding Japan's fiscal and monetary policy, while near-term US factors, including the wait for CPI, are also playing a role.