[USD/JPY] Re-approaching the 158 Yen Wall | Buying Back on Interest Rate Differentials Despite Intervention Fears
Good morning! I will explain today’s USD/JPY fundamentals.
Yesterday, Tokyo was closed for Respect for the Aged Day, but overseas markets were moving as usual, and the USD/JPY pair returned to the 157 yen range before we knew it. Although the yen was bought back to the 156 yen range during Friday’s rate check (an act where authorities inquire about market levels), yen selling driven by interest rate differentials has gradually revived while the authorities have not actually taken action. Above, there is the ‘borderline with authorities’ at 158 yen, and below, there is the ‘invisible floor’ of interest rate differentials. Today, I will organize this tug-of-war.
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0. Today’s Conclusion
Today, September 22nd, the Tokyo market is open as usual (tomorrow is the Autumnal Equinox Day, so it will be closed again), but there are no notable Japanese factors, and the main player in the market is still overseas. The USD/JPY pair returned to the low 157 yen range in yesterday’s overseas market, and for the time being, I see it as a wider range of the high 156 yen range to the low 158 yen range, with a tendency to lean slightly toward yen depreciation. The low 158 yen range on the upside has a strong ‘lid’ due to the previous week’s high, the 200-day moving average, and intervention fears, making it harder to rise as it approaches this level. Conversely, below 157 yen, dip buying conscious of the Japan-US interest rate differential is likely to enter. The expected range is 156.20 to 158.50 yen. This week, there are US indicators ahead, such as the US PMI on the 23rd and the US-China summit on the 24th, so it is difficult for a clear direction to emerge until then, and I expect a development where intervention fears and interest rate differentials clash within the range.
Reviewing Yesterday’s Predictions
In the previous article on Monday, September 21st, I predicted, ‘Focusing on the high 156 yen range, with a wall in the mid-158 yen range on the upside and support in the 155 yen range on the downside. It is slightly prone to yen depreciation, but it is heavy before 158 yen due to intervention fears. Expected range 155.50 to 159.00 yen.’ In addition, in the next preview, I listed ‘how the USD/JPY pair swings in the 156-158 yen range in the first half of this week’ as a focus variable, and set ‘wait-and-see centered on the high 156 yen range until the US-China summit passes, with a ceiling before 158 yen due to intervention fears’ as the main scenario. In reality, yesterday, while Tokyo was closed, the USD/JPY pair rose from the 156 yen range to the low 157 yen range in overseas markets. The dollar was bought back on the view that the Japan-US interest rate differential would not narrow, but it still did not reach 158 yen, and the wall of intervention fear functioned. Both the direction and the range were within the scope of my prediction, and I see it as mostly correct. It swung slightly more toward yen depreciation (157 yen range) than expected, but the core point that ‘it hits a ceiling before 158 yen’ is effective for now.
Today’s Numbers (Fixed-point Observation)
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USD/JPY: Low 157 yen range (1:00 AM on September 22 = around 157.48 yen, NY level on September 21). It returned about 70 sen toward yen depreciation from the 156.80 yen close on the 19th
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US 10-year Treasury yield: Approximately 5.00% (rose 7bp on the 18th to top 5.00%, and has remained high around 5% since then)
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October FOMC (October 28) rate hike pricing: Approximately 57% for a rate hike and 43% for a hold on CME FedWatch (as of the morning of September 22, Japan time). Almost flat from the 56.5% in the previous article, with the view of ‘one more step in October’ remaining the majority
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US stocks: Nasdaq at 27,122 dollars, the highest level in about 3 months, S&P 500 at 7,764 dollars (+1.49%), and Dow at 52,048 dollars (+0.71%) = closing prices on the 21st. Risk-on mood is a weight on the yen
Gold trading performance (previous day): No trades (the 21st was a holiday for Respect for the Aged Day)
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1. Basic Premise
First, I will briefly organize the foundation of the current market.
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US Policy Interest Rate | 3.75-4.00%. At last week’s FOMC (Federal Open Market Committee), a rate hike was decided for the first time in 3 years, and the members’ interest rate outlook (dot chart) indicated ‘one more time within the year.’ If US interest rates remain high, the dollar, which earns interest, is likely to be bought.
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Japanese Policy Interest Rate | 1.25%. At last week’s BOJ meeting, it was raised by 0.25%, reaching the level since 1995. However, two members opposed the rate hike, and Governor Ueda did not specify the timing of the next rate hike. The market perceives it as ‘a rate hike was done, but it will be slow from here.’
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Foreign Exchange/Authorities | In early August, the largest-ever yen-buying intervention was implemented in coordination between Japan and the US. At the end of last week, a BOJ rate check also took place, and the current 157-158 yen range is a ‘caution zone where it would not be surprising if authorities moved at any time.’
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This Week’s Market | Tokyo is closed on the 23rd (Autumnal Equinox Day). Overseas, materials are concentrated toward the latter half, with US PMI on the 23rd, the US-China summit and US indicators on the 24th, and US indicators on the 25th.
2. Market Pricing
According to the CME FedWatch (a tool that calculates the probability of rate hikes from the futures market), the pricing for the October FOMC is approximately 57% for a rate hike and 43% for a hold (as of the morning of September 22). Following last week’s hawkish FOMC and Chair Warsh’s message that they will “continue to fight inflation,” the view of “one more step in October” remains high, exceeding 50%. The US 10-year Treasury yield is also holding around 5%, and the market is pricing in that “the US will do it one more time; the question is whether it will be in October or December.”
On the Japanese side, although a rate hike was implemented, Governor Ueda did not promise a timeline for the next move, leading to the perception that “Japanese interest rates will rise slowly from here.” This temperature difference—”the US in a hurry, Japan being cautious”—is a major reason why the downside of USD/JPY remains supported even after the rate hike. However, the fact that the authorities are not just watching the yen’s depreciation silently is what leads to the current tension as it moves into the 157 yen range.
3. Comprehensive Evaluation
To summarize the current USD/JPY in one phrase: “a standoff between the yen-selling pressure from interest rate differentials and the authorities’ intervention warnings.” Although it returned to the 156 yen range once due to the rate check at the end of last week, yen selling based on interest rate differentials revived while the authorities did not fire live ammunition, bringing it back to the low 157 yen range.
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Factors for yen depreciation (upward) | High US interest rates due to a hawkish Fed (approx. 57% pricing in an October hike), the gap in the pace of rate hikes between Japan and the US, and risk-on sentiment from yesterday’s US stock gains.
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Factors for yen appreciation (downward) | Authorities’ vigilance shown by the rate check, the 200-day moving average as an upper resistance barrier in the low 158 yen range, and risk-off sentiment if the US-China talks on the 24th turn sour.
In the short term, I expect a back-and-forth development where “it is sold due to intervention warnings as it approaches 158 yen, and bought back due to interest rate differentials when it falls below 157 yen.” This week, events that are likely to determine the direction, such as the US PMI on the 23rd and the US-China summit on the 24th, are concentrated in the latter half, so it is unlikely that a major trend will emerge until then. I want to make this a week to observe whether the authorities or the market wins at both ends of the range, rather than chasing it in a hurry.
4. Top 5 Important News
News 1: USD/JPY moves into the low 157 yen range for a reset—buying back dollars on interest rate differentials, intervention warnings reignited (September 21, NY Forex)
Importance: ★★★★★
What happened? Yesterday, the 21st, was Respect for the Aged Day in Tokyo, so the market was closed, but overseas markets were moving as usual. USD/JPY rose from the 156 yen range to the low 157 yen range, reaching around 157.48 yen this morning (1:00 AM JST). The dollar was bought back due to the view that the interest rate differential between Japan and the US will not narrow. Even though the yen was bought back to the 156 yen range once during Friday’s rate check, it gradually returned toward yen depreciation while the authorities did not actually move. However, the previous week’s high and the 200-day moving average, as well as intervention warnings, are concentrated in the low 158 yen range, so the upside remains heavy.
Make it easier to understand!
Imagine pushing a rubber ball underwater. During Friday’s rate check, the authorities pushed the ball (USD/JPY) down hard. But when you let go, it floats back up due to the buoyancy of interest rate differentials. The current 157 yen range is exactly in a state of “having been pushed down and now floating back up.” However, there is a ceiling board at 158 yen above the water surface, and if it hits that, the authorities might come to push it back down in earnest. So, it floats, but it’s hard to go all the way to the ceiling at once. That is the image of continuing such cramped ups and downs.
Impact on USD/JPY
Short-term perspective (day trading): It is a back-and-forth market environment where it is easily sold due to intervention warnings as it approaches 158 yen, and buying back conscious of interest rate differentials is likely to enter when it falls below 157 yen.
Long-term perspective (swing): As long as the interest rate differential between Japan and the US remains wide, I expect the downside to remain firm. However, new yen-depreciation factors are needed to clearly exceed the barrier in the low 158 yen range.
Case where the scenario collapses: If actual currency intervention occurs, or if risk-off yen buying strengthens due to a breakdown in US-China talks, etc., yen appreciation below 156 yen also comes into view.
News 2: Finance Minister Katayama: “Same stance as during coordinated intervention”—authorities’ restraint acts as a weight before 158 yen (September 8 and others, Nihon Keizai Shimbun / Bloomberg)
Importance: ★★★★☆
What happened? Since the beginning of September, Finance Minister Satsuki Katayama has repeatedly warned against yen depreciation, stating regarding the exchange rate that ‘the response policy has not changed at all since the time of the joint US-Japan intervention’ and that they are ‘always approaching it with a sense of urgency.’ There is a track record of the largest-scale yen-buying intervention in history being conducted jointly by the US and Japan in early August, and a rate check (a level inquiry considered a precursor to intervention) was also reported last weekend on the 19th. While there have been no confirmed reports so far that an actual yen-buying intervention has been carried out, the market is struggling to gauge the authorities’ seriousness, wondering if ‘the next one might really come.’
In simpler terms!
The authorities’ warnings are like a watchdog’s ‘Woof!’ It hasn’t bitten yet (no live-fire intervention), but just by barking, the thief (yen-selling forces) stops in their tracks for a moment. However, if it only barks and never bites, eventually people realize, ‘This dog only barks,’ and they enter the garden again. We are currently in that very phase of assessment: will the authorities just ‘bark,’ or will they ‘bite’ like they did in August? The market is probing that while moving closer to and further from the 158 yen fence.
Impact on USD/JPY
Short-term outlook (day trading): Since the market environment moves by 1 yen on a single intervention-related headline, contrarian yen selling in the 158 yen range is dangerous.
Long-term outlook (swing): While intervention has limited power to stop the yen depreciation trend itself, it functions as a ‘lid’ to cap the upside. The 158-160 yen range is likely to remain recognized as a battle zone with the authorities.
Case where the scenario collapses: If the authorities remain silent and the market realizes it was ‘just talk,’ the movement will be to test the 158 yen range smoothly.
News 3: Prelude to the US-China Summit (24th), Ministerial-level talks are a ‘success’—Extension of tariff truce is the focus (September 20, CNBC/Bloomberg)
Importance: ★★★★☆
What happened? Ahead of the summit between President Trump and President Xi Jinping scheduled for the 24th in Washington, US-China ministerial-level trade talks were held in New York on the 20th. Treasury Secretary Bessent evaluated the talks with Chinese Vice Premier He Lifeng as a ‘success.’ The biggest focus is whether the US-China tariff truce, which expires on November 10, can be extended. Reductions in mutual tariffs of approximately $30 billion, as well as agricultural products and non-tariff barriers, are expected to be on the agenda. Taiwan and AI (artificial intelligence) are also points of contention, and the results will significantly influence global risk sentiment.
In simpler terms!
The US-China tariff truce is, so to speak, a ‘temporary ceasefire in a fight.’ Since this ceasefire expires in November, the biggest highlight is whether they can shake hands on ‘extending it a little longer’ at the summit on the 24th. If they can shake hands, investors will feel safe taking risks, and the safe-haven yen will be easier to sell (= USD/JPY goes up). Conversely, if it ends in a stalemate, everyone will move their money to the safe yen, so the yen will be easier to buy (= USD/JPY goes down). Since the ‘atmosphere’ of the summit alone can swing USD/JPY up or down, we need to be especially careful from the night of the 24th through the 25th.
Impact on USD/JPY
Short-term outlook (day trading): I see it as difficult for a clear direction to emerge until we pass the summit on the 24th.
Long-term outlook (swing): If they agree to extend the truce, it will be risk-on yen depreciation; if it breaks down, it will be risk-off yen appreciation, serving as a turning point that will influence risk sentiment for the following few weeks.
Case where the scenario collapses: If the summit unexpectedly intensifies the confrontational tone, risk-off yen buying could lead to yen appreciation below 156 yen.
News 4: US stocks risk-on, Nasdaq hits highest level in about 3 months—Lower oil prices and interest rates provide a tailwind (September 21, CNBC/TheStreet)
Importance: ★★★★☆
What happened? U.S. stocks rose yesterday, the 21st, led by tech stocks. The Nasdaq Composite Index closed at $27,122, up 2.26% from the previous day, hitting a new high for the first time in about three months since June. The S&P 500 closed at $7,764, up 1.49%, and the Dow Jones Industrial Average closed at $52,048, up 0.71%. A decline in crude oil prices and U.S. long-term interest rates brought buying back into interest-rate-sensitive tech stocks, marking a rebound from last week’s decline.
In simpler terms!
Days when stocks rise are days when everyone is feeling ‘bullish.’ When investors are willing to take risks, safe assets—like the Japanese yen or Swiss franc—are more likely to be sold because people feel they don’t need to seek shelter today. In the market, this is called ‘risk-on.’ Yesterday was a classic example of this, with the mood so positive that the Nasdaq hit a new high. So, apart from the interest rate differential, this ‘stock market rally = risk-on’ atmosphere itself was working to sell the yen and push the USD/JPY pair higher.
Impact on USD/JPY
Short-term outlook (day trading): As long as the stock market rally continues, risk-on yen selling will support the USD/JPY floor.
Long-term outlook (swing trading): As long as U.S. stocks remain firm near their highs, the movement to buy the yen as a safe-haven asset is unlikely to emerge, reinforcing the yen-weakening trend.
Scenario breakdown case: If stocks plummet due to U.S.-China talks or U.S. economic indicators, the market will shift to risk-off yen buying.
News 5: U.S. 10-year Treasury yield remains high around 5%, Fed maintains ‘one more hike this year’ stance (September 21, Market Conditions/Fed Officials)
Importance: ★★★☆☆
What happened? The U.S. 10-year Treasury yield rose 7bp (basis points = 0.01%) on the 18th to reach 5.00% and has remained high around 5% since. Following the first interest rate hike in three years at last week’s FOMC and Chair Warsh’s hawkish message, the market has priced in one additional rate hike before the end of the year. New York Fed President Williams also stated that ‘the rise in yields reflects a strong economy,’ leaving room for additional hikes. Since speeches by Fed officials will continue from the 22nd onwards this week, the focus will be on whether the sentiment for ‘one more hike this year’ is confirmed.
In simpler terms!
A 5% yield on U.S. Treasuries means that ‘you get 5% per year just by keeping your money in the U.S.’ Since there is a large gap with Japanese interest rates (1.25%), global money naturally flows toward the dollar, which has higher interest rates. This ‘interest rate differential’ is like a mattress placed quietly under the USD/JPY pair; even if it drops a little, it bounces back here. It’s not a flashy piece of news, but this interest rate differential is the primary foundation quietly supporting the floor of the weak yen.
Impact on USD/JPY
Short-term outlook (day trading): It is not a factor that causes large movements on its own, but the interest rate level around 5% supports the dollar on dips.
Long-term outlook (swing trading): As long as the Fed’s stance on additional rate hikes continues, the high level of U.S. interest rates will keep the floor of USD/JPY firm.
Scenario breakdown case: If Fed officials suddenly lean dovish (cautious about rate hikes), the pricing of an October rate hike will be stripped away, causing the dollar to weaken.
5. Today’s key points!
These are the three points that beginners should grasp today.
Point 1: The 157 yen range is a place that “sinks on intervention, but floats on interest rate differentials”
Although it sank to the 156 yen range during Friday’s rate check, it floated back to the 157 yen range due to interest rate differentials while the authorities did not act. If you remember that the tug-of-war between the authorities’ warnings and interest rate differentials is the essence of the current market, the reasons for price movements will make sense to you.
Point 2: 158 yen is the “borderline with the authorities”
The upside target is the low 158 yen range, where the 200-day moving average passes. This is also the previous week’s high and is an intervention alert zone. If you remember that it is easier to be sold as it gets closer, you can avoid buying at the high.
Point 3: The real action starts from the “US PMI on the 23rd and the US-China talks on the 24th”
Today and tomorrow, there are few Japanese factors, so it is a structure that tends to be a wait-and-see. Since movements are likely to occur after the US PMI on the 23rd and the US-China summit on the 24th, it is not too late to watch those before making any big moves.
6. Summary
Yesterday, while Tokyo was on holiday, USD/JPY returned to the low 157 yen range in overseas markets. Although it sank to the 156 yen range during Friday’s rate check, yen selling based on interest rate differentials revived while the authorities did not fire live ammunition—this best describes the current USD/JPY. Today, I expect a range of the high 156 yen to low 158 yen range, and while it is likely to lean slightly toward yen depreciation, I expect the development to be heavy before 158 yen due to intervention fears. What will determine the direction is the US PMI and the US-China summit in the latter half of this week. I want to make this a week where I don’t panic and move after seeing the results of the events.
Next Preview: The biggest variable to check the answer in the next article is the US September PMI preliminary value to be announced on Wednesday the 23rd. My main scenario is “if the PMI is strong, expectations for an October rate hike will strengthen, supporting the dollar and testing 158 yen; if it is weak, rate hike expectations will recede and USD/JPY will strengthen to below 157 yen.” Will it remain heavy before 158 yen due to intervention fears, or will strong indicators break the wall? Next time, we will start by checking this answer.
7. Bonus: Fundamental Trivia
Why is the “200-day moving average” so closely watched?
A moving average is a line that connects the average of closing prices over a certain period in the past. Among them, the 200-day moving average is the “average value for the past 10 months or so,” and it is watched by traders around the world as a representative landmark that shows the long-term direction of the market. For the current USD/JPY, it passes right around the low 158 yen range. The reason it is watched so closely is that many people use the “same line” to make buying and selling decisions. If a large number of people take the same action, such as “let’s take profits when it approaches the 200-day line” or “if it exceeds this, it’s a full-scale rise,” that line really functions as a wall or support. In a sense, it has a self-fulfilling aspect where it becomes a truly important line because everyone believes it is “important.” Moreover, this time, the 200-day line and the authorities’ intervention alert zone overlap exactly. That is why the low 158 yen range is a particularly formidable wall that is doubly capped by both technicals and the authorities.
8. Finally
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Disclaimer
This article provides reference information for investment and does not recommend the buying or selling of specific financial products. Foreign exchange and financial markets involve unpredictable risks. Please make actual investment decisions at your own responsibility. I cannot take any responsibility for investment results based on the information in this article.