[USD/JPY] Interest rate differentials remain intact despite a 2-yen pullback | Is verbal intervention only temporary?
Good morning! I will explain the fundamentals for USD/JPY today.
On Friday, USD/JPY rose to 158.95 yen before ending in the 156 yen range. What pushed it down was not US economic indicators, but a two-stage attack of “words”: a morning press conference and an evening phone call. I will break down why this was so effective.
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0. Today’s Conclusion
For today, September 28, I see the USD/JPY market as having a tendency to test the upside gradually, with dips being bought on the support of interest rate differentials. On Friday, the cards for curbing yen depreciation were strengthened in two stages. At the post-cabinet meeting press conference in the morning, Finance Minister Satsuki Katayama revealed that President Trump had expressed concern about the weak yen during the Japan-US summit, and Prime Minister Takaichi explained that he had also conveyed that “the undervaluation of the yen is a problem.” Furthermore, from 9:00 PM, Katayama held a discussion with US Treasury Secretary Bessent online for about 20 minutes, reaffirming the recognition that “the undervaluation of the yen is a problem.” However, this call was intended to supplement the financial market discussions from the Japan-US summit on September 22. In other words, it was not new ammunition or an emergency escalation, but a “confirmation of words” along the established line. The effect of verbal intervention is likely to be temporary, and the upward engine of interest rate differentials has not stopped. In fact, the US 10-year Treasury yield is at 5.16%, and the Japan-US interest rate differential has not narrowed at all. Therefore, I see the level that dropped to 156.94 yen on Friday as likely to be picked up as a dip. Today, there are no major US indicators, and it will be a day waiting for month-end/quarter-end flows and headlines. I expect a range of 156.80 to 158.50 yen, and I anticipate that any dips will be gradually bought back. However, just before 160 yen is a joint Japan-US caution zone, so be cautious about chasing the upside.
Reviewing yesterday’s predictions
The previous daily article was on Friday, September 25. In it, I wrote, “The trend where buying is dominant will continue. Expected range 158.30 to 160.00 yen, and dips are likely to be bought.” In reality, the high was 158.95 yen during Tokyo hours, and from there it fell to 156.94 yen in the NY market, closing at 157.28 yen.It broke below the lower limit of the range by 1.36 yen, and the direction was also opposite. Looking only at the materials up to Friday morning, the logic of interest rate differentials was alive, but the conclusion is that the cards the authorities brought out that day were stronger. However, this phone discussion was a supplement to the summit = a confirmation of the established line, not new ammunition. I view the effect of verbal intervention as temporary, and from today, I will shift my focus back to the “gradual rise” led by interest rate differentials.
The variable I singled out in the previous preview wasUS August durable goods orders (preliminary). My view was, “If core excluding transportation equipment exceeds expectations, it will try for 160 yen; if it is in the negative range, it will be pushed back to the low 158 yen range.” The result was that core excluding transportation equipment was plus 0.3%, which was below the expected plus 0.6%, but it was an intermediate figure that was not in the negative range (orders for core capital goods, which reflect capital investment, were plus 1.6%, exceeding expectations). Despite this, the market fell not just to the low 158 yen range, but to the 156 yen range. In other words, the way I chose the variable itself was wrong, and the star of the day was not the indicator but the Finance Minister’s phone call. The lesson is that “meetings” or “phone discussions” scheduled for Friday night must be viewed with the same weight as indicators.
Today’s numbers (fixed-point observation)
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USD/JPY: 157.28 yen (NY closing price on September 25). Opening 158.86 yen, high 158.95 yen, low 156.94 yen. This is the first decline in 6 business days.
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US 10-year Treasury yield: 5.160% (minus 0.037 from the previous day). It rose to 5.22% at one point during the day, reaching the highest level since June 2007, but fell toward the close. The 2-year bond is 4.856% (minus 0.069), and the 30-year bond is 5.487%.
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October FOMC (held October 27-28, results early morning on the 29th, Japan time) rate hike pricing: 70% range for a rate hike on CME FedWatch (September 24-25). On the Investing.com version of FedWatch, as of 13:35 on September 26, 2026, a rate hike is 66.6% and a hold is 33.4%.
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BOJ rate hike outlook: Rate hiked to 1.25% on September 18. The minutes of the July 30-31 meeting will be released today at 8:50 AM. The market’s pricing for additional rate hikes remains sluggish.
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Crude oil: WTI (US standard oil type) November delivery is $92.41 (minus $2.20, minus 2.33%), the first decline in 3 business days.
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US stocks: Dow $51,828 (plus 0.93%), S&P 500 is 7,743 (plus 0.51%), Nasdaq Composite is 27,068 (plus 0.48%) = all three indices were positive for the week at the 25th close. The Nikkei Stock Average is 66,364.20 yen (plus 850.21 yen), up for 5 consecutive days.
Gold investment performance (last week): 5,315 yen (Mon 3,710, Tue 2,854, Wed -8,726, Thu 3,969, Fri 3,508)
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1. Basic Premise
First, I will organize the foundation of the current market.
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US policy interest rate | 3.75-4.00%. A rate hike for the first time in 3 years was decided at the FOMC (US Federal Open Market Committee) on September 16, and the members’ interest rate outlook indicates “one more time within the year.” Last week, Governor Barr and President Musalem also touched on the necessity of additional tightening.
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Japan’s policy rate | 1.25%. The Bank of Japan raised it by 0.25% at the September 18 meeting. Even so, the gap with the U.S. remains over 2.5%, and this difference is the foundation for yen selling.
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Currency/Authorities | Coordinated Japan-U.S. yen-buying intervention was already implemented from late July to early August. On September 19, a rate check (where authorities inquire about market levels) was also reported. Then, on September 25, the Japanese and U.S. finance ministers reaffirmed in a phone call that “the undervaluation of the yen is a problem.” The level of rhetoric has been raised a notch.
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Today’s market | In Japan, the BOJ’s July meeting minutes and the August Corporate Service Price Index (forecast is +3.7% year-on-year) will be released at 8:50 AM. There are no major economic indicators scheduled for release in the U.S. With the end of the month and quarter approaching, it is the start of a week where institutional investor position adjustments are likely to occur. Indirect U.S.-Iran talks are expected to take place as early as today, and crude oil will move depending on the headlines.
2. Market Pricing
The pricing for the October FOMC, as seen in the CME FedWatch (a tool that calculates the probability of rate hikes from the futures market), is at the 70% level (September 24-25). In the Investing.com version of FedWatch, which calculates probabilities from the same futures, the probability of a rate hike is 66.6% and a hold is 33.4% as of 1:35 PM JST on September 26. Since it was around 50% the week before last, the market has almost entirely shifted to the premise that “they will continue in October.” Looking ahead to the meeting on December 8-9, the rate hike probability has climbed to 92.5% in the Investing.com version.
What I want to focus on here is that it was the 2-year note that fell on Friday. Since the 2-year note is a bond that reflects the outlook for policy rates up to about two years ahead, rate hike expectations appear most directly. The fact that the 2-year note fell by nearly 7 basis points (4.856%) means that the rate hike expectations that had been building up all last week took a breather on Friday. The fact that crude oil fell back to the $92 range and eased inflationary pressure also had an impact.
On the other hand, on the Japanese side, market pricing has not increased even after the rate hike on September 18. This is because the policy rate gap is over 2.5%, so moving it by 0.25% does not close it. Therefore, market interest has shifted from “when will the BOJ move?” to “when will the government fire live ammunition?” This week is a week where some of that answer can be seen, as the implementation status of foreign exchange intervention (for the period from August 27 to September 28) will be announced at 7:00 PM on September 30. It is the timing to see in numbers whether there was intervention or not.
3. Comprehensive Evaluation
Friday’s USD/JPY was a day where the reasons for rising and falling swapped over time. During the Tokyo session, it rose to 158.95 yen. U.S. durable goods orders exceeded expectations, and the University of Michigan consumer sentiment was also revised upward, with U.S. interest rates rising to 5.22% at one point. However, the flow changed the moment the phone call between the Japanese and U.S. finance ministers began at 9:00 PM JST and the announcement that “the undervaluation of the yen is a problem” was released. It fell to 156.94 yen in the NY market and closed at 157.28 yen. With the drop in crude oil, U.S. interest rates also fell toward the close, resulting in a combination of yen buying and dollar selling.
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Factors for yen depreciation (upward) | Maintenance of the U.S. 10-year note at 5.16% and the Japan-U.S. interest rate gap, October FOMC rate hike pricing at around 70% and over 90% by December, additional tightening remarks by Fed officials, risk appetite as all three U.S. stock indices rose, and end-of-month/quarter supply and demand flows.
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Factors for yen appreciation (downward) | Yen depreciation restraint language jointly confirmed by Japan and the U.S., vigilance toward the intervention results to be announced on September 30, retreat in inflation expectations due to crude oil falling back to the $92 range, decline in 2-year note yields, and the possibility of crude oil falling further if U.S.-Iran talks progress.
My view is this: The engine of the interest rate gap has not stopped. Both Japan and the U.S. have expressed their intention not to “let it go to 160 yen,” but Friday’s phone call was a supplement to the summit meeting—a confirmation of the established path, not new live ammunition. The effect of verbal intervention is temporary, and unless live ammunition is used, the downside will be supported by the interest rate gap. Therefore, for the time being, I see the main scenario as a gradual attempt to test the upside while dips are bought based on the interest rate gap. Today, with no U.S. indicators, there may be scenes where the market is swayed by the BOJ minutes at 8:50 AM, U.S.-Iran talk headlines, and end-of-month flows. The turning point is whether it can maintain the 157 yen range. If it can hold, it will test a return to the high 158 yen range, and even if it breaks, it is likely to be bought in the high 156 yen range; that is the structure I am looking at. However, since just before 160 yen is the authorities’ caution zone, be cautious about chasing the upside itself.
4. Top 5 Important News
News 1: Japanese and U.S. finance ministers reaffirm in a phone call that “the undervaluation of the yen is a problem,” USD/JPY plunges to 156.94 yen (September 25, Ministry of Finance / Nihon Keizai Shimbun)
Importance : ★★★★★
What happened? Finance Minister Satsuki Katayama held an online discussion with U.S. Treasury Secretary Bessent for about 20 minutes starting at 9:00 PM JST on September 25. According to the Ministry of Finance’s announcement, both sides reaffirmed their recognition that “the undervaluation of the yen is a problem.” Ms. Katayama explained the purpose of this discussion as “to supplement the exchange regarding financial markets at the Japan-U.S. summit on September 22.” Secretary Bessent also posted on social media that they discussed the recognition that “a strong yen reflecting Japan’s solid economic fundamentals is desirable.” USD/JPY turned downward from a high of 158.95 yen, fell to 156.94 yen in the NY market, and closed at 157.28 yen.
Make it easier to understand!
Until now, the restraint on yen depreciation was like the Japanese Finance Minister saying “please stop” all by herself. The other side was testing it while half-doubting, “Are they serious?” However, on Friday, Japan, the side buying the yen, and the U.S., the side whose dollar was being sold, agreed on the phone, saying, “Yes, the current yen is too cheap.” This is close to the difference between being warned by one teacher at school and having the homeroom teacher and the grade head teacher line up to warn you. Even though what they are doing is the same “words,” the tension on the receiving side changes completely. That is why the market pulled back by 2 yen.
Impact on USD/JPY
Short-term outlook (day trading): Neutral to slightly bullish. This call is a confirmation of the established path supplementing the summit meeting on September 22, and I view the effectiveness of verbal intervention as temporary. Dips into the 156 yen range are likely to be bought up, relying on the interest rate gap.
Long-term outlook (swing): Bullish (yen depreciation). The engine of rising interest rate differentials remains intact. Although a wall of “joint US-Japan vigilance” has been built just before 160 yen, unless actual intervention occurs, the downside is supported by the interest rate gap, and I see a structure of slowly testing the upside.
Scenario breakdown case: If actual yen buying is confirmed in the intervention results to be published on September 30, or if the authorities take further steps with more aggressive remarks, chasing the upside will become difficult all at once, and a decline to the low 156 yen range is possible.
News ②: US 10-year Treasury yield hits 5.22% (highest since June 2007), closes lower at 5.160% (September 25, Minkabu FX / Zaikei Shimbun)
Importance: ★★★★★
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Reason: Interest rates, the foundation of USD/JPY, moved in opposite directions during the day and at the close.
What happened? In the US bond market on September 25, the 10-year Treasury yield rose to 5.22% during the day, the highest level since June 2007. The upward revision of the final University of Michigan Consumer Sentiment Index was the driving factor. However, it fell back toward the close, with the final price at 5.160% (down 0.037 from the previous day). The 2-year note, which easily reflects policy rate expectations, fell more significantly to 4.856%, down 0.069. The 30-year bond rose slightly to 5.487%. The pullback of crude oil to the $92 range led to the decline in interest rates at the close.
Make it easier to understand!
Interest rates are the “rent for borrowing money.” That rent finally rose to its highest level since 2007, but it ended the day slightly lower. The point is that the decline was larger for “short-term rent.” Short-term rent directly reflects expectations for the policy rate set by the Fed, so the fact that this fell is proof that the market briefly thought, “The Fed might not be in such a hurry to raise rates.” The logic is that because crude oil became cheaper and inflation concerns eased, the reason to rush rate hikes also decreased slightly.
Impact on USD/JPY
Short-term outlook (day trading): Slightly bearish (yen appreciation). The decline in the 2-year note weakens short-term dollar buying pressure.
Long-term outlook (swing): The foundation for bullish (yen depreciation) remains. As long as there is an absolute level of 5% for the 10-year Treasury, yen selling based on interest rate differentials will continue.
Scenario breakdown case: If this week’s US PCE or employment statistics are strong, the 2-year note will rebound sharply, rate hike expectations will reignite, and dollar buying will revive.
News ③: President Trump says “Iran wants to make a deal, but it’s not a proposal we can agree to,” indirect talks as early as today the 28th (September 27-28, Kyodo News)
Importance: ★★★★☆
What happened? President Trump revealed on September 27 that US negotiators are expected to hold repeated discussions with the Iranian side this week. However, he stated, “Iran wants to make a deal, but it’s not a proposal we can agree to,” and also claimed that Iran has “been too aggressive.” Regarding the resumption of attacks, he warned that he is “always thinking about it.” Indirect talks are expected to take place as early as September 28, with Qatari officials meeting separately with US Special Envoy Witkoff and Iranian Foreign Minister Araghchi. The focus is on the opening of the Strait of Hormuz; Iran proposed that it would open it within 7 days if the US agreed to lift the port blockade, but Trump rejected this.
Make it easier to understand!
The Strait of Hormuz is a narrow waterway through which the world’s crude oil passes. Because it is closed, crude oil is expensive. What the US and Iran are doing now is a negotiation over “who will let go of the key first.” Iran says, “If you lift the blockade, I’ll open it in a week,” and the US says, “Open it first.” Neither can move because they lose their card if they yield first. When there are signs that this negotiation is progressing, crude oil falls, US inflation concerns ease, and interest rates fall. If it breaks down, crude oil jumps and interest rates rise. In other words, the news about the Strait of Hormuz is not a distant Middle Eastern story, but a story about the price of USD/JPY.
Impact on USD/JPY
Short-term outlook (day trading): Neutral. If reports of progress in negotiations emerge, it will shift toward dollar selling due to lower oil prices and lower interest rates; if negotiations break down or attacks resume, it will shift toward dollar buying due to higher oil prices and higher interest rates.
Long-term outlook (swing trading): If an agreement is truly reached, oil prices will drop significantly and expectations for US interest rate hikes will weaken, which will stop one of the engines driving the USD/JPY upward.
Case where the scenario collapses: If military action resumes before negotiations begin, oil prices and inflation expectations will jump simultaneously, potentially leading to a sudden shift toward yen depreciation.
News 4: US August durable goods orders were 0.0%, beating expectations, but excluding transportation, they were +0.3%, missing expectations (September 25, US Census Bureau / Fisco)
Importance: ★★★★☆
What happened? US durable goods orders for August (preliminary) were 0.0% month-on-month, beating the market expectation of -0.3%. However, growth has stalled from July’s +0.9%. The core figure, which excludes volatile transportation equipment, was +0.3%, missing the expectation of +0.6% (July’s figure was revised upward from +0.4% to +0.7%). Meanwhile, orders for non-defense capital goods (excluding aircraft), which are most closely watched as a leading indicator for capital investment, were +1.6%, significantly beating the expectation of +0.5%. Shipments in the same category were +0.6%, missing the expectation of +0.8%. The final reading of the US September University of Michigan Consumer Sentiment Index was 48.1, revised upward from the expected 47.5 and the preliminary reading of 47.8. However, it is down 7.0% from August, marking a four-month low, and one-year inflation expectations are at 4.6%, the highest level since June.
In simpler terms!
Durable goods orders are a tally of ‘orders for big-ticket items by companies.’ There are three things to look at here: the total, the portion excluding things like airplanes, and ‘core capital goods,’ which reflect corporate capital investment. This time, the total held steady at zero, and the figure excluding transportation missed expectations. However, orders for core capital goods, which best indicate the future of the economy, grew by +1.6%, more than triple the expectation. This is because investment related to AI is continuing. Consumer sentiment (the University of Michigan index) was also revised upward from the preliminary reading. However, this is down 7% from August, and the one-year price outlook has risen to 4.6%. The content was divided: companies are strong, while households are fearful of inflation.
Impact on USD/JPY
Short-term outlook (day trading): Neutral. Although core capital goods were strong, the miss in the figure excluding transportation was notable and did not serve as a catalyst for dollar buying on Friday.
Long-term outlook (swing trading): Slightly upward (yen depreciation). If capital investment remains strong, the resilience of the US economy will be confirmed, and expectations for additional interest rate hikes will likely remain.
Case where the scenario collapses: If the October 1 ISM Manufacturing Index (expected 55.0) is strong, the slowdown in durable goods will be ignored as a ‘temporary blip’.
News 5: WTI falls for the first time in 3 trading days to $92.41, all three US stock indices rise, Nikkei Average rises for 5 consecutive days (September 25, Minkabu FX / Nihon Keizai Shimbun)
Importance: ★★★☆☆
What happened? NY crude oil futures (WTI) for November delivery closed at $92.41 per barrel, down $2.20 or 2.33% from the previous day, falling for the first time in three trading days. This is because supply concerns eased due to expectations of progress in US-Iran negotiations. US stocks saw all three indices rise: the Dow at $51,828.62 (+478.64, +0.93%), the S&P 500 at 7,743.41 (+0.51%), and the Nasdaq Composite at 27,068.72 (+0.48%), with all three securing gains for the week. The Nikkei Average closed at 66,364.20 yen on September 25 (+850.21 yen, +1.30%), marking its fifth consecutive day of gains. The main drivers were AI/semiconductor stocks and bank stocks, which are expected to see improved margins due to rising interest rates in Japan and the US.
In simpler terms!
A drop in oil prices is basically good news for Japan. Since Japan relies almost entirely on imports for energy, high oil prices increase the amount of dollars paid to foreign countries, making the yen easier to sell. Conversely, if oil prices fall, that yen-selling pressure eases slightly. Furthermore, on the US side, inflation concerns are fading and interest rates are falling, which also acts as a brake on dollar buying. Stocks are rising because there are earnings expectations strong enough to withstand rising interest rates, and the stock price increase itself is a risk-taking move, which works toward yen selling. Oil and stocks are exerting forces in opposite directions on the USD/JPY.
Impact on USD/JPY
Short-term outlook (day trading): Neutral. The yen-buying pressure from lower oil prices and the yen-selling pressure from higher stock prices are tending to offset each other.
Long-term outlook (swing trading): If oil prices break below $90 and stabilize, Japan’s trade balance will improve, providing support for the yen.
Scenario breakdown case: If US-Iran talks collapse and oil prices head back toward $100, inflation expectations and US interest rates will rise simultaneously, re-accelerating yen depreciation.
5. Today’s key points!
Here are the three points that beginners should grasp today.
Point 1: The weight of verbal intervention depends on “who says it”
Even with the same words, “yen depreciation is a problem,” the weight is completely different when said by the Japanese Finance Minister alone versus when confirmed alongside the US Treasury Secretary. The 2-yen pullback on Friday was not because the content of the words changed, but because the backing behind the words changed. When reading the news, try to look at “who said it to whom” as much as the content itself.
Point 2: Look at the “shorter” interest rates to understand the real intention
The US 10-year Treasury yield briefly rose to 5.22%, hitting a new high, but the 2-year yield, which is closer to the policy rate, ended lower. While long-term rates are mixed with concerns about the economy and fiscal policy, short-term rates almost directly reflect expectations for the Fed’s next move. If you want to know whether rate hike expectations have strengthened or eased, checking the movement of the 2-year yield is the shortcut.
Point 3: Month-end and quarter-end see an increase in “unexplained price movements”
This Wednesday is the end of September, and also the end of the quarter. During this period, institutional investors adjust their positions for financial reporting, so there will be times when the market moves significantly even without news. Be especially careful around 24:00 Japan time, which is the London fixing (the time for setting prices in the London market). Even if it looks like your reading was wrong, the cause is often just supply and demand.
6. Summary
On Friday, the USD/JPY pair moved from 158.95 yen in Tokyo time to 156.94 yen in New York. The culprit behind the drop was not US economic indicators, but the telephone conference between the Japanese and US finance ministers held at 21:00 Japan time. By reaffirming the recognition that “the undervaluation of the yen is a problem” between Japan and the US, the card for checking yen depreciation has become one step stronger. Although the US 10-year Treasury yield briefly rose to 5.22%, hitting its highest level since June 2007, it fell to 5.16% at the close due to lower oil prices. The 2-year yield also fell, suggesting that the rate hike expectations that had been building up all last week have taken a breather.
There are no major US indicators today. The Bank of Japan’s summary of opinions at 8:50, headlines on the indirect US-Iran talks, and month-end/quarter-end flows will be the main drivers. The expected range is 156.80 to 158.50 yen. Friday’s call was a supplement to the summit meeting—a confirmation of the established path—so the effectiveness of the verbal intervention is temporary. As long as interest rate differentials provide support, dips are likely to be bought, and I see the market testing the upside little by little. However, just before 160 yen is a joint Japan-US caution zone. First, I want to see if it can hold the mid-157 yen level.
Next preview: The biggest variable to check in the next article is the **US August JOLTS job openings (forecast 7.225 million, previous 7.271 million) to be announced on Tuesday, September 29 at 23:00**. My main scenario is: “If it falls below expectations to the low 7 million range, anxiety about the October 2nd employment report will take precedence, US interest rates will fall, and it will be pushed back to the 156 yen range. Conversely, if it increases to the 7.3 million range, the resilience of the labor market will be confirmed, and it will recover to the 158 yen range.” Including the CB Consumer Confidence Index (forecast 90.1) at the same time, we will start next time by checking these results.
7. Bonus: Fundamental trivia
Why does the market move by 2 yen just because “Japan and the US confirmed it”?
Intervention includes “verbal intervention” without using live ammunition, and “live ammunition intervention” where yen is actually bought. What the market is really afraid of is the latter, but live ammunition cannot be fired indefinitely. Therefore, authorities need to make the market believe they are “prepared to fire” before they actually do. One way to increase that credibility is through an agreement with the other country.
Foreign exchange intervention is an act of buying one’s own currency, which means selling the other country’s currency, so if the other country dislikes it, it becomes a diplomatic issue. Conversely, if the other country is saying that a “strong yen is desirable,” Japan can act without hesitation. What was confirmed in Friday’s telephone conference was precisely this condition of “not having to hesitate.” Market participants recalculated that the probability of live ammunition coming had increased and rushed to buy back the yen.
By the way, even during the intervention phases in 2024 and 2025, the stance of the US Treasury Department was often watched as a material for observation. If you see the words “Japan-US” in foreign exchange news, try reading it thinking that it is not just diplomatic etiquette, but a hint to gauge the probability of intervention.
8. Conclusion
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Disclaimer
This article provides reference information for investment and does not recommend the buying or selling of any specific financial products. Foreign exchange and financial markets involve unpredictable risks. Please make actual investment decisions at your own risk. I cannot be held responsible for any investment results based on the information in this article.