The Japanese yen has made a sharp move against the US dollar. On Tuesday, September 8, the yen rose to 153.53 per dollar. This was its strongest level since February and marked a major change from its weak position only a short time ago.
The move has caught the attention of currency traders across global markets. The yen had traded above 160 per dollar as recently as early last week. Since then, it has gained nearly 4% against the US dollar. The yen also rose 1.2% on Monday during a quiet US holiday session.
The latest move also took the yen beyond levels seen during Japan’s July currency intervention. That makes the rise more important because the market had treated the 155 area as a key level for the dollar-yen pair.
The dollar-yen rate falls when the yen gets stronger. So, a move from 160 to 153.53 means that fewer yen are now needed to buy one US dollar.
Why the Yen Has Become Stronger
Several forces are behind the yen’s recent rise. One of the main reasons is a change in views about the Bank of Japan, or BOJ.
For a long time, the BOJ kept its rates very low compared with other major central banks. That made the yen less attractive to many investors. Traders often borrowed yen at low cost and used the money to buy assets with higher returns elsewhere.
Now, markets expect the BOJ to take a firmer path on interest rates. Traders see a greater chance of another rate hike, and some expect the central bank to act faster than they had thought before.
Higher Japanese rates can make the yen more attractive. They can also reduce the gap between Japanese rates and US rates. That can take some pressure off the Japanese currency.
Recent Japanese economic data has also helped this view. Japan’s economy grew faster than first estimated in the April-June quarter, while real wages rose 2.4% from a year earlier in July. That was the biggest annual rise in real wages since May 2021. These figures can give the BOJ more reason to consider a faster policy shift.
Carry Trades Face a Major Test
Another major reason for the yen’s rise is the reversal of carry trades.
A carry trade is a strategy where an investor borrows money in a currency with low interest rates and puts that money into assets that offer higher returns. The yen has been a popular funding currency for this type of trade because Japanese interest rates have stayed low for many years.
But a stronger yen can create a problem for these investors.
If a trader borrows yen when one dollar costs 160 yen, and later the dollar falls to 153.53 yen, the trader needs more dollars to repay the same yen debt. That can turn a profitable trade into a loss.
As a result, some traders may close their positions. That creates more demand for yen and can push the currency higher.
The move below 155 appears to have made this effect stronger. Analysts said the fall in USD/JPY looked like a sharp exit from short-yen positions after the pair broke key support near 155.
The 155 Level Was Important
The move below 155 is one of the most important parts of this story.
For much of the year, the 155 area acted as a floor for USD/JPY during periods of yen strength. When the dollar fell toward that level, traders often expected the yen’s advance to slow.
This time, the pair broke below it.
That break may have caused automatic stop-loss orders to activate. Such orders can force traders to close positions once a certain price is reached. This can make a market move much faster.
The break also changed the mood among investors. A trade that once looked like a simple bet on a weaker yen now looks less certain.
Japan’s Past Currency Action Matters
Japan has already taken major steps to support the yen this year.
Between July 30 and August 26, Japan spent 15.4 trillion yen, or about $98.66 billion, on currency intervention. It was the country’s largest monthly currency intervention on record.
Japan sold dollars and bought yen in an effort to support its currency. The action helped the yen move away from 40-year lows near 164 per dollar.
Japan’s foreign reserves fell by $79.6 billion, or 6.18%, in August after the record intervention. Reserves stood at $1.208 trillion at the end of the month.
The yen later settled near the 155-156 area. It has now moved well below that range.
This history means traders remain alert to the possibility of more official action if the currency moves too fast in either direction.
US Inflation Data Could Change the Picture
The next major event for the dollar and yen is US inflation data.
The US Consumer Price Index, or CPI, is due this week. The report could affect expectations for the Federal Reserve’s next rate decision.
At present, traders see about a 60% chance of a US rate hike this month. That view came after stronger-than-expected US jobs data.
A hotter CPI report could support the US dollar. It would suggest that inflation remains a concern and could make a Fed rate hike more likely.
A softer CPI report could have the opposite effect. It could reduce the case for a US rate hike and put more pressure on the dollar.
That makes the inflation report especially important for USD/JPY.
The Dollar Is Also Under Pressure
The yen’s strength is not the only reason for the fall in USD/JPY. The US dollar itself has also faced some pressure.
The dollar index was at 98.83 on Tuesday. The euro was up 0.06% at $1.1628, while the pound was also up 0.06% at $1.3549.
This suggests that the dollar’s weakness is not limited to the yen. Still, the yen has made one of the strongest moves among major currencies in recent sessions.
The US dollar also faces uncertainty over the Federal Reserve’s next move. Strong jobs data has raised rate hike expectations, but the CPI report could change that view.
Global Risks Add More Uncertainty
The currency market also faces fresh geopolitical risks.
Tensions in the Gulf have increased after Iran warned that it could respond to new US attacks by targeting energy infrastructure in the region, including US oil and gas interests.
Oil prices have reacted to the risk. Brent crude stayed above $97 a barrel and remained close to a six-week high. Higher oil prices can add to inflation pressure and may affect central bank decisions in both the US and other major economies.
This creates another difficult factor for traders. A rise in oil prices could keep US inflation high, while a stronger yen could affect Japan’s import costs.
What Happens Next for the Yen?
The big question now is whether the yen can stay strong.
A move to 153.53 does not automatically mean the yen will continue to rise at the same pace. Currency markets can change quickly after a major move.
The next major test may come from US inflation data and the Federal Reserve’s rate outlook. At the same time, traders will watch the BOJ closely for clues about its next policy move.
If US inflation comes in below expectations and the BOJ shows a stronger preference for higher rates, the yen could receive more support.
If US inflation is higher than expected and the Fed takes a more hawkish view, the dollar could regain some ground.
A Possible Change in the Yen Story
For years, the broad market view was that the yen would remain weak. Low Japanese rates, strong demand for US assets and large carry trades all helped keep pressure on the Japanese currency.
That view is now under serious pressure.
The move from around 160 to 153.53 in only a short period shows how quickly market sentiment can change. The break below 155 has added to that shift.
The yen’s latest rise is therefore more than a single day’s currency move. It reflects new expectations about Japanese rates, a possible return of Japanese capital, a reversal of carry trades and weaker demand for the US dollar.
For now, the key number is 153.53. The next major clues will come from US CPI data and the BOJ’s policy signals.
The yen has moved a long way in a short time. Whether this marks the start of a longer period of yen strength or only a sharp correction will depend on what central banks and economic data show next.
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