The Japanese yen has unexpectedly transformed from one of the market’s weakest currencies into a growth leader. On September 8, USDJPY fell to 152.89 — its lowest level since February, while the pair had recently been trading around 160. Since the beginning of September, the yen has strengthened by approximately 4.5%, forcing traders to reassess the pair’s further trajectory.
This time, the yen’s rise is driven not only by the threat of currency intervention. The market is increasingly preparing for a rate hike by the Bank of Japan at its September 17–18 meeting. A 25-basis-point rate increase to 1.25% is now almost fully priced in.
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What is supporting the yen:
The Bank of Japan is preparing to raise rates. Expectations of further monetary policy tightening are making the yen more attractive and narrowing the interest-rate differential between Japan and the US.
Real wages are rising. In July, they increased by 2.4% year-on-year — the highest level since 2021. For the Bank of Japan, this is an important signal: rising household incomes reduce the risk that higher rates will hurt consumption too severely.
Japan’s economy has proven more resilient than expected. Second-quarter GDP growth was revised upward to 1.4% annualized, giving the central bank more room to continue raising rates.
Investors are closing short-yen positions. For a long time, market participants borrowed the cheap Japanese currency and invested the funds in higher-yielding assets abroad. Now, as Japanese rates rise, such trades are becoming less profitable, forcing investors to buy back the yen.
The currency is receiving additional support from the authorities’ stance. Finance Minister Satsuki Katayama confirmed that Japan and the US continue to coordinate their actions to maintain stability in the foreign exchange market. Following the joint intervention in July, traders are already factoring in the risk that a rapid return of USDJPY to its highs could once again trigger a response from the authorities.
According to FreshForex analysts, the yen still has the upper hand, and pressure on USDJPY may continue. Expectations of a Bank of Japan rate hike, rising real wages, and the unwinding of speculative short-yen positions continue to support the Japanese currency. If the central bank confirms on September 17–18 that it is prepared to continue raising rates, USDJPY could once again test the 150–152 area.
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