[Weekly Total Review] US Long-Term Interest Rates Reach 5.36% – Trump's Iran Remarks – Takaichi Administration's Departure from Reflation – Summarizing a Turbulent Week and …

On the evening of Saturday, October 10, 2026, the foreign exchange market concluded a tense week and entered the weekend closure period.

Looking back at this week’s market, the US 10-year Treasury yield briefly recorded a high of 5.3645%, the highest level in about 24 years, and the USD/JPY pair also saw moments where it was bought up to around 158.36 yen. However, in the latter half of the week, triggered by US President Trump’s remarks regarding the situation in Iran, crude oil and US interest rates fell sharply, and the USD/JPY pair plummeted to around 157.52 yen (a drop of about 84 sen from the high), repeating intense squeezes in both directions.

“Why was the USD/JPY pair capped in the mid-158 yen range even though US interest rates jumped to the 5.3% level?”

“Is the sharp decline caused by Trump’s remarks just temporary noise, or the beginning of a trend reversal?”

“How will the market move toward the US September CPI (Consumer Price Index) on October 14 next week?”

Rather than letting the events of this week end as mere headlines, we will thoroughly summarize the key scenarios for next week while unraveling the causal relationships of ‘News -> Ripple effects on interest rates, crude oil, and capital flows -> Actual rate fluctuations’.

Chapter 1: Verification of the ‘5 Major Important Factors’ that Dominated the Market This Week

First, let’s organize the core factors that significantly moved the market this week.

1. Surge in US Treasury Yields (5.36%) and High Plateau (5.24%)

The biggest market driver this week was the turmoil in the US Treasury market.

The US 10-year Treasury yield jumped to 5.3645% mid-week, updating to its highest level in about 24 years. Although it subsequently fell due to a strong 30-year Treasury auction and a retreat in geopolitical risks, it ended the week at an extremely high level of about 5.24% (the US 2-year Treasury yield was about 4.79-4.80%).

2. FOMC Minutes: Reconfirmation of Hawkish Stance and the Wall of ‘Priced-In’ Expectations

In the September FOMC minutes released on October 7, it was confirmed that many participants remain wary of upside inflation risks and continue to support additional rate hikes within the year.

However, while the market had already priced in a ‘December rate hike (probability of about 70%)’, it did not become a new surprise strong enough to break the structure of ‘postponing the October rate hike (holding steady probability of about 80%)’ following the slowdown in the employment statistics, and as a result, the sustainability of the dollar’s strength was limited.

3. US President Trump’s ‘No Iran Attack’ Remark

Early on October 9, President Trump announced that he would ‘not attack Iran before the November 3 US midterm elections’ and suggested progress in productive discussions (maritime blockade measures, etc., will continue).

Brent crude oil, which had surged to the $106 per barrel level just before, fell sharply to the mid-$102 level (weekend close was around the $103-$104 level). Inflation concerns due to high energy prices temporarily receded, becoming the direct trigger for the USD/JPY pair to plummet through the decline in US long-term interest rates.

4. Takaichi Administration’s ‘Departure from Reflation’ Remark and Search for Fiscal Management

In Japan, Prime Minister Takaichi stated in the extraordinary Diet session that ‘the Japanese economy is not in deflation’ and ‘this is not a phase where reflationary policies are necessary,’ emphasizing a stance of respecting the independence of the Bank of Japan.

Furthermore, on the 9th, she checked the yen’s depreciation by saying, ‘We will closely monitor trends in exchange rates and prices and respond appropriately.’ Because the government’s message was slightly revised from ‘unlimited fiscal expansion’ to ‘dialogue with the market and fiscal discipline,’ the one-sided yen selling that had priced in a collapse of government bonds (a sharp rise in interest rates) was suppressed.

⑤ US Stock Market at Record Highs and Bond Market Instability

On October 9, the US stock market closed at record highs, with the S&P 500 rising +1.2% for the week.

However, it cannot be said that ‘higher stocks equal stable risk-on.’ The rise in stocks while US long-term interest rates remain stuck in the 5.2% range still contains underlying supply-demand concerns in the bond market (huge fiscal deficits and pressure from increased corporate bond issuance), and is built upon an unstable equilibrium.

Chapter 2: Timeline of the Past Week (10/5–10/9)

Looking back at the market’s trajectory over the week, it is clear that various factors were colliding in a complex manner.

[Market Movements of the Week]

・10/5 (Mon): Prime Minister Takaichi’s policy speech. Japan’s 30-year JGB yield hit a record high of 4.235% at one point. Euro weakness due to political instability in France provided support for the dollar-yen.

・10/6 (Tue): Governor Ueda indicated a stance of continuing rate hikes, stating that ‘anchoring to the 2% target is important,’ but there was no mention of October, resulting in a calm market. US long-term interest rates resurfaced to the 5.3% range.

・10/7 (Wed): Brent crude oil resurfaced to the $100 range. BOJ Board Member Sato accepted gradual rate hikes. The dollar-yen struggled to gain momentum just before 158.50 yen.

・10/8 (Thu): The US FOMC minutes were already priced in as hawkish, leading to little reaction. Japan’s 30-year JGB auction was strong, leading to yen buying. Prime Minister Takaichi clearly stated a move toward ‘post-reflation’.

・10/9 (Fri): Trump’s remarks were reported early in the morning, causing crude oil to fall back and US interest rates to drop, leading to a sharp decline in the dollar-yen to 157.52 yen (down 84 sen). The market closed the week fluctuating in the high 157 yen range.

Summarizing this week’s market, it was a week where the ‘force of US interest rates in the 5.3% range and high crude oil prices pushing up the dollar-yen’ and ‘technical resistance at 158.50 yen (daily 200-day moving average), caution regarding Japanese authorities’ currency intervention, and the shedding of risk premiums due to Trump’s remarks’ were in conflict.

Chapter 3: Situation in Japan—Three Issues Influencing the Yen Exchange Rate

To forecast the direction of the yen from next week onwards, it is necessary to calmly evaluate three major domestic factors.

1. The Dilemma of the Takaichi Administration: Fiscal Discipline vs. Budget Expansion

Although the Takaichi administration has indicated a policy of limiting new government bond issuance to approximately 40 trillion yen, the total amount of budget requests for the next fiscal year has reached 143 trillion yen, and a temporary reduction in consumption tax on food and beverages (to 1%) also requires funding of approximately 4 trillion yen per year.

• If progress is made in curbing expenditures and clarifying funding sources: Fiscal anxiety will recede, acting as a supporting factor for bond stability and the yen.

• If tax cuts and spending take precedence, leading to awareness of increased government bond issuance: This will lead to bond selling (sharp rise in interest rates) and pressure for a weaker yen.

2. Finance Minister Katayama and the Government’s Currency Response

Although verbal intervention has occurred in the 158 yen range, it has not yet reached the tense expressions used just before actual intervention, such as ‘decisive measures against excessive fluctuations’ or ‘not ruling out any means’.

Even though the agreement on Japan-US coordination is maintained, under the current situation where US interest rates remain high, the structure is such that the yen-strengthening effect of unilateral verbal intervention is unlikely to last long.

3. BOJ Governor Ueda’s stance on additional interest rate hikes

The Bank of Japan raised its policy interest rate to 1.25% in September.

The market’s interest is in whether there will be an additional rate hike within the year (October or December). Comments from BOJ Policy Board members affirming a gradual rate hike have also emerged, so the BOJ’s normalization path remains alive. However, because the absolute interest rate differential with the US (US 5.2% vs. Japan 1.2%) remains overwhelming, a ‘significant decline in US interest rates’ is essential for a stronger yen to take hold.

Chapter 4: The Depths of International Affairs—Three Major Risks That Cannot Be Overlooked

These are factors that are causing tectonic shifts in the global market, transcending the framework of foreign exchange.

[Points of Caution for the International Market]

① Middle East/Strait of Hormuz: Although the risk of attack has receded due to Trump’s remarks, the risks of a maritime blockade or tanker attacks continue. If crude oil surges again toward the $105-$110 range, US inflation concerns will reignite, leading to a reversal toward a stronger dollar.

② China-EU Trade Agreement and Rare Earths: China has shown a positive stance toward facilitating rare earth export permits to the EU, and reports indicate an agreement to avoid trade friction. If concerns over the supply chain for European manufacturing ease, it could lead to euro buying and a pause in the dollar’s rise.

③ Fed Independence and President Trump’s Pressure: Concerns regarding the independence of the central bank have emerged, such as President Trump’s renewed demand for the dismissal of Fed Governor Lisa Cook. Concerns about political intervention in the central bank carry the risk of creating complex distortions, such as an increase in the premium on US Treasury bonds (higher interest rates) and a decline in the credibility of the dollar.

Chapter 5: Key Events for Next Week (10/12–10/16) and the Complete Scenario for the ‘US September CPI’

The biggest turning point next week is the ‘US September CPI (Consumer Price Index)’ to be announced on Wednesday, October 14th.

[Important Schedule for Next Week (Japan Standard Time)]

・10/12 (Mon): 🇯🇵 Japanese market closed (Sports Day) ➔ Beware of sudden moves and sharp fluctuations amid thin trading due to Tokyo’s absence.

・10/13 (Tue): 🇨🇳 China September Trade Statistics

・10/14 (Wed) 21:30: 🇺🇸 US September CPI (Consumer Price Index) 🔥🔥🔥🔥🔥 [The biggest showdown of the week]

・10/15 (Thu) 21:30: 🇺🇸 US September PPI (Producer Price Index) / 🇨🇳 China September CPI/PPI

・10/16 (Fri) 21:30: 🇺🇸 US September Retail Sales ★★★★

Scenario matrix by US September CPI results

The background to this week’s US interest rates jumping to 5.36% at one point is the market’s strong suspicion that ‘inflation might reignite.’ If the CPI comes in higher than expected, an additional rate hike within the year will be fully justified, while if it comes in lower, a sharp dollar reversal will occur alongside a decline in US interest rates.

Chapter 6: Practical Chart Analysis and ‘Defense Lines’

These are the technical levels to keep in mind for next week’s trading.

[Upper Resistance Tiers]

160.00 yen: Absolute psychological defense line (Maximum alert for Japan-US coordinated intervention) ↑
159.00 yen: Major level ↑
★ 158.50–158.55 yen: [Daily 200-day moving average & structural resistance] ↑ 158.36 yen: 10/9 high (starting point of the sharp drop before Trump’s remarks) ↑
158.00 yen: Level
――――――
Current price: Around 157.70–157.80 yen (weekend close)
――――――
[Lower Support Tiers]
★ 157.50–157.52 yen: 10/9 sharp drop low (immediate support) ↓
157.00 yen: Level ↓
★ 156.93–156.95 yen: [Low from last week’s 10/2 US employment statistics shock] ↓
156.50 yen: Structural bedrock support on a daily basis

Summary: Monitoring Checklist to Survive Next Week’s Market

The most dangerous thing in the world of trading is making short-sighted assumptions like ‘going long brain-dead because US interest rates are high’ or ‘going short unconditionally because oil prices dropped’.

From the weekend through the start of the week, please regularly check the following 6-point checklist.

1. US 10-year Treasury yield (5.24%): Will it resurface to the 5.3% range or decline to the 5.1% range?

2. US 2-year Treasury yield (4.79%): Will the market’s pricing of a December Fed rate hike advance or retreat?

3. Oil prices (Brent $103–$104): Will the lull in the Middle East situation continue or reignite?

4. Dollar Index (DXY) and Dollar pairs: Is it a broad dollar rally, or is it driven by yen weakness?

5. Cross-yen pairs (EUR/JPY, GBP/JPY): Is there an offset occurring due to European currency weakness?

6. Tone of Japanese authorities’ remarks: Signals of alert for live intervention when approaching the 158 yen range.

First, let’s carefully navigate through Monday’s Tokyo holiday (price movements during low liquidity) and prepare our funds and mental state fully for Wednesday’s US September CPI.

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