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Published: 7 September 2026,06:32
Daily Market Analysis New
*BOJ hawkish repricing supports the yen: Markets are nearly fully pricing a 25bp BOJ hike in September, while expectations of a faster tightening cycle are increasing.
*Intervention risk remains a major yen support: Japan spent ¥15.4tn (~$98.7bn) on yen-buying intervention, while August FX reserves recorded a record $79.6bn decline. This reinforces the market’s sensitivity to further yen weakness.
*Carry-trade unwinding is adding momentum: The combination of higher expected Japanese rates, intervention concerns and reduced confidence in continued yen weakness is encouraging investors to unwind yen-funded positions.
The Japanese yen remains supported by a sharp repricing of Bank of Japan (BOJ) policy expectations, with markets increasingly convinced that the BOJ will raise rates at its September 17–18 meeting. The latest catalyst came from Takuji Aida, an economic adviser to Prime Minister Sanae Takaichi, who said he expects a September hike and potentially further increases into early 2027. Markets are now almost fully pricing a 25bp hike to 1.25%, while speculation has also shifted toward a faster tightening cycle thereafter. This represents a significant change from the earlier expectation that the BOJ would move only gradually, and it has helped drive a major unwinding of yen-funded carry trades.
Japanese authorities are also showing a much stronger willingness to defend the yen. Japan spent ¥15.4 trillion, or roughly $98.7 billion, between July 30 and August 26 to buy yen and sell dollars, marking its largest intervention on record. The intervention pushed USD/JPY from around 164 to approximately 155.20 before the pair later recovered toward 160. More importantly, August data showed Japan’s foreign-exchange reserves falling by a record $79.6 billion, or 6.18%, to $1.208 trillion, with foreign securities holdings declining by $87.8 billion. The scale of the decline suggests that the intervention materially reduced Japan’s foreign-currency assets, potentially including U.S. Treasury holdings. This creates an additional layer of support for the yen because markets now have to price not only BOJ tightening, but also the possibility of further official intervention if yen weakness becomes excessive.
At the same time, the US-Japan interest-rate differential is beginning to move less decisively against the yen. The strong August US payrolls report initially boosted expectations for a September Fed hike, with markets putting the probability around 57–60%, but the dollar failed to sustain its gains. The latest US inflation data will therefore be critical: stronger CPI/PPI could reinforce higher US yields and temporarily limit yen appreciation, while softer inflation could weaken Fed tightening expectations and further narrow the rate gap. Meanwhile, the US-Japan relationship itself has become an important factor, with Treasury Secretary Scott Bessent signalling that he expects Japan to take steps toward a stronger yen, adding political pressure for Tokyo to address currency weakness.
Looking ahead, the yen’s fundamental backdrop remains increasingly constructive, although the path is unlikely to be one-way. USD/JPY has already fallen sharply from above 160 to the 155–156 area, while the lower-155 region is becoming an important test of whether the recent yen rally can extend. A break lower would likely require confirmation from either a more hawkish BOJ, weaker US inflation, renewed intervention concerns, or further unwinding of carry trades. Conversely, stronger-than-expected US inflation could revive Treasury yields and dollar demand. With the BOJ meeting on September 17–18 approaching and US CPI/PPI due this week, the yen is entering a particularly sensitive period where monetary-policy divergence, intervention risk and US inflation expectations are all converging into the same trade.
USD/JPY has turned bearish after breaking below the 159.95 support and the rising trendline, triggering a sharp sell-off toward the 155.75 support. Price is now consolidating just above this key level, making it an important area for the next move. A sustained break below 155.75 would strengthen the bearish outlook and expose 152.10 as the next major support. On the upside, 159.95 has become the immediate resistance, while a recovery above this level would be needed to ease the current selling pressure and restore a more constructive bias.
Momentum indicators also favour the bears, although the downside pressure is beginning to moderate. RSI has fallen to 36, remaining below the neutral 50 level and indicating bearish momentum, but it has started to recover from oversold territory. Meanwhile, MACD remains bearish, with the MACD line below the signal line, while the histogram remains negative. However, the histogram has begun to narrow, suggesting that downside momentum may be losing some strength. Overall, the bias remains bearish below 159.95, with 155.76 acting as the key support to watch; a break below this level could accelerate the decline toward 152.08, while a sustained recovery above 159.95 would signal improving upside momentum.
Resistance Levels: 159.95, 163.95
Support Levels: 155.75, 152.10
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