[USD/JPY] Yen bought back despite rate hike | It's the “we're watching” comment that's working
Good morning! I will explain today’s USD/JPY fundamentals.
Last week was a historic week with both Japan and the U.S. raising interest rates. Normally, one would think “higher interest rates = that currency is bought,” but the USD/JPY pair temporarily weakened to the 158 yen level, only to be pulled back to the 156 yen level by a single “comment” from the authorities. Friday’s close was around 156.80 yen, returning to a level close to where it was before the rate hike. What is driving the market is not the rate hike itself, but the atmosphere surrounding it—the “what’s next” and “where will the authorities act” sentiment.
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0. Today’s Conclusion
Today, September 21st, is Respect for the Aged Day, and the Tokyo market is closed. The day after tomorrow, the 23rd, is the Autumnal Equinox Day, also a holiday, making this a non-standard week for Tokyo. The main stage for the market is entirely overseas, with the U.S. PMI on the 23rd, the U.S.-China summit on the 24th, and U.S. indicators in the latter half of the week. I expect the USD/JPY to wait and see within a wide range, centered around the high 156 yen level, with a ceiling at the mid-158 yen level and support at the 155 yen level. The trend is slightly prone to yen depreciation, but the tug-of-war will likely continue, with the upside becoming heavy as it approaches 158 yen due to caution over intervention by the authorities. The expected range is 155.50 to 159.00 yen. Since prices tend to jump during hours when participants are few due to holidays, I don’t think this is a week to force positions.
Reviewing yesterday’s predictions
In last weekend’s weekly article, I predicted “a slight yen depreciation from a deadlock, with an expected range of 155.00 to 158.50 yen, and the zone above 158 yen being a battleground with the authorities.” In reality, last weekend, the yen was bought back sharply following reports of a Bank of Japan rate check (an action considered a precursor to intervention), and the Friday New York market closed around 156.80 yen. Although it did touch the 158 yen level once, it was suppressed from there. My assessment that “above 158 yen is a battleground and the upside is heavy” was correct, but the landing was closer to yen appreciation than I had anticipated. My honest impression is that the authorities’ “warning” was more effective than I thought.
Today’s numbers (fixed-point observation)
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USD/JPY: Around 156.80 yen (NY closing price on Friday, 9/19). The weekly flow saw the yen weaken to the 158 yen level after the BOJ rate hike, then sharply reverse to the high 156 yen level following the rate check report early on the 19th. It crossed over into the new week like that.
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October FOMC rate hike pricing: CME FedWatch shows about 56.5% for a rate hike and about 43.5% for a hold (as of the morning of September 21st). This is up from about 53% on September 18th, with the view of “another step in October” exceeding half. At least one additional rate hike by the December meeting is priced in at about 90%.
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Bank of Japan: The policy of additional rate hikes is maintained. Some in the market see “the next one this winter” (Bloomberg/Nikkei reports).
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Technical levels: The upside is the 200-day moving average at the 158.40 yen level, followed by the 100-day line at the mid-159 yen level. The downside is the 25-day line at the low 157 yen level; breaking that puts the 155 yen level in view (Gaitame.com/Hirons FX, September 19).
Gold trading performance (last week): 12,095 yen (Mon 2,345, Tue 3,750, Wed 5,000, Thu 1,000, no trades on Friday)
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1. Basic Premise
First, let’s organize the foundation of the current market.
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U.S. 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 three years, and the members’ interest rate outlook (dot plot) indicated “one more time within the year.” As long as U.S. interest rates remain high, the interest-bearing dollar is likely to be bought.
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Japan’s Policy Interest Rate | 1.25%. At last week’s BOJ meeting, it was raised by 0.25%, reaching a level not seen since 1995. However, two members opposed the rate hike, and Governor Ueda did not specify the timing of the next hike. The market perceives this as “a rate hike, but a cautious one.”
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Currency/Authorities | In early August, the largest-ever yen-buying intervention was carried out in coordination between Japan and the U.S. Last weekend, a BOJ rate check also occurred, and the current 156–158 yen level is a “caution zone where the authorities could act at any time.”
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This week’s market | Tokyo is closed for holidays on the 21st and 23rd. Overseas, materials are concentrated in the latter half of the week, with U.S. PMI on the 23rd, the U.S.-China summit and U.S. indicators on the 24th, and more U.S. indicators on the 25th.
2. Market Pricing
The pricing for the October FOMC, as seen via the CME FedWatch tool (which calculates the probability of a rate hike from the futures market), is approximately 56.5% for a hike and 43.5% for a hold (as of the morning of September 21). Following last week’s hawkish FOMC, the view that there will be “another step in October” has exceeded 50%. The probability of at least one additional rate hike by the December meeting is about 90%, meaning the U.S. side is priced for “one more hike, the only question is when.”
On the Japanese side, although a rate hike was implemented, Governor Ueda did not commit to a timeline for the next move, leading to the widespread perception that “Japanese interest rates will rise slowly from here.” This temperature difference—”hurrying U.S., cautious Japan”—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 sitting by and watching that yen depreciation is what is fueling this week’s tension.
3. Overall Assessment
In a nutshell, the current USD/JPY is a “standoff between yen-selling pressure from interest rate differentials and the authorities’ vigilance against intervention.”
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Factors for Yen Depreciation (Upward) | High U.S. interest rates due to a hawkish Fed (over 50% pricing for an October hike), the gap in the pace of rate hikes between Japan and the U.S., and the resilience of the U.S. economy.
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Factors for Yen Appreciation (Downward) | The authorities’ vigilance indicated by the rate check, the resistance wall at the 200-day moving average in the mid-158 yen range, and the risk of sudden fluctuations during thin trading on holidays.
With the pair returning to the high 156 yen range on Friday, I expect a back-and-forth trend in the near term where it is “sold as it approaches 158 yen and bought back in the 155 yen range.” Since Tokyo has intermittent holidays this week, the direction will depend on overseas factors. In particular, the U.S.-China summit on the 24th will significantly move global risk sentiment depending on the outcome, so I believe it will be difficult for a clear direction to emerge until after that. I would like to spend this week observing whether the authorities or the market wins at either end of the range, rather than forcing a trade.
4. Top 5 Important News
News 1: USD/JPY ends the week at 156.80 yen while pricing in yen appreciation from the rate check—heavy at the top just before 158 yen (September 19, NY Forex)
Importance: ★★★★★
What happened? Last week, USD/JPY rose to the 158 yen range after the Bank of Japan’s rate hike on the 18th. However, early on the 19th, when it was reported that the BOJ had conducted a “rate check” to inquire about exchange rate levels with market participants, the yen surged by more than 1 yen. The New York market closed at around 156.80 yen on Friday. Despite the yen-depreciating news of a rate hike, the market returned toward yen appreciation over the weekend due to just one “word” from the authorities.
In simpler terms!
Imagine a speed trap. The police car didn’t turn on its siren and pull you over (actual intervention), it just parked on the side of the road and showed you its radar gun (rate check). Even so, every driver slows down, right? The authorities didn’t fire live ammunition, but just by signaling “we are watching,” they stopped the hands of those betting on yen depreciation. However, since no ticket was issued, if vigilance fades, speed is likely to return. That is the delicate balance that the current 156 yen range sits on.
Impact on USD/JPY
Short-term view (Day trading): It is a back-and-forth environment where it is easily sold as it approaches 158 yen due to intervention fears, and easily bought back in the 155 yen range due to interest rate differentials.
Long-term view (Swing trading): As long as the interest rate differential between Japan and the U.S. remains wide, I expect the downside to remain firm. However, new yen-depreciating factors are needed to clearly break through the wall in the mid-158 yen range.
Case where the scenario collapses: If actual currency intervention occurs, or if risk-off yen buying intensifies due to a breakdown in U.S.-China talks, a break below 155 yen becomes a possibility.
News 2: Currency intervention remains at the “preparatory stage”—rate check conducted but no live ammunition confirmed (September 19, Nikkei and other reports)
Importance: ★★★★☆
What happened? What was reported at the end of last week was merely a ‘rate check,’ and there has been no confirmation report so far that an actual yen-buying intervention has been carried out. A rate check is considered a preliminary step to intervention, and Kyodo News also reported that ‘the government and the Bank of Japan are preparing for yen-buying intervention.’ Given the track record of conducting one of the largest coordinated interventions in history last August, the market is on alert, thinking, ‘The next one might really be coming.’
Explain it more simply!
Authorities often use the phrase ‘decisive action,’ but it is customary to first issue warnings through verbal comments and rate checks before firing live ammunition (intervention). This time is that warning stage. That is why the market is wavering between ‘it’s still okay’ and ‘it’s getting dangerous soon.’ Intervention is a heavy decision that uses taxpayer money, so the authorities do not move recklessly. Conversely, this means that if the market forgets its caution and significantly exceeds 158 yen, the possibility of live ammunition being fired this time increases.
Impact on USD/JPY
Short-term outlook (day trading): Since the market environment is such that a single intervention-related headline can move the price by 1 yen, contrarian yen selling in the 158 yen range is dangerous.
Long-term outlook (swing trading): While intervention has limited power to stop the yen-depreciation trend itself, it functions as a ‘lid’ to suppress the upside. The 158-160 yen range is likely to continue to be recognized as a battle zone with the authorities.
Case where the scenario collapses: If the authorities remain silent and the market sees through it as ‘just talk,’ the price will move to test the 158 yen range again.
News 3: The stars of this week are the US-China summit on September 24 + a rush of US indicators (September 21, Economic Indicator Calendar)
Importance: ★★★★☆
What happened? This week, important events are concentrated overseas. The flow is: US September PMI preliminary figures (manufacturing/services) on the 23rd, the US-China summit and US initial jobless claims/US August new home sales on the 24th, and US August durable goods orders and the final University of Michigan consumer sentiment index on the 25th. The US-China summit on the 24th, in particular, will significantly influence global risk sentiment depending on agreements regarding tariffs and trade.
Explain it more simply!
The market this week has the image of ‘quiet in the first half, sudden movement in the second half.’ The first half (Mon, Tue, Wed) is a holiday in Tokyo with few materials, so it’s a wait-and-see approach. It is likely to develop into a situation where it suddenly becomes active with the US-China summit and indicators on Thursday. If the US and China are conciliatory, investors will feel at ease and take risks (the yen is likely to be sold), and if they clash, money will flee to the safe yen (the yen is likely to be bought). Since there is a possibility that USD/JPY will swing both up and down based on the ‘atmosphere’ of the summit, special caution is needed from Thursday night through Friday.
Impact on USD/JPY
Short-term outlook (day trading): I see it as difficult for a major direction to emerge until we pass the US-China summit and indicators on the 24th.
Long-term outlook (swing trading): If US PMI and jobless claims are strong, the pricing in of an ‘October rate hike’ will progress further, providing support for the dollar. Conversely, if they are weak, rate hike expectations will recede, and USD/JPY will become heavy.
Case where the scenario collapses: If the US-China summit unexpectedly intensifies its confrontational tone, a sharp drop to the 155 yen range due to risk-off yen buying is possible.
News 4: Fed official speeches are concentrated this week—confirming the temperature of ‘one more time within the year’ (September 21, Economic Indicator Calendar)
Importance: ★★★☆☆
What happened? This week, speeches are scheduled for the 22nd, 24th, and 25th by officials including New York Fed President Williams, as well as presidents from the Cleveland and Philadelphia Feds. Following the indication of “one more rate hike this year” at last week’s FOMC, attention is focused on how much these officials will maintain that stance.
Make it easier to understand!
The “final exam” known as the FOMC is over, but official speeches are where the teachers (Fed officials) share their individual thoughts afterward. If there are many comments saying “more rate hikes are still necessary,” the market will find it easier to believe in “one more hike this year” and buy dollars. Conversely, if a tone of “we want to wait and see for a while” emerges, rate hike expectations will wither and the dollar will be sold. Even though the exam score (policy interest rate) has been decided, the atmosphere can change based on the teachers’ comments.
Impact on USD/JPY
Short-term perspective (day trading): It is not a material that causes large movements on its own, but hawkish remarks support dips in the dollar.
Long-term perspective (swing trading): As long as officials continue to support additional rate hikes, the high level of U.S. interest rates will keep a floor under USD/JPY.
Case where the scenario collapses: If multiple officials suddenly lean dovish (cautious about rate hikes), the pricing in of an October rate hike will be stripped away, causing the dollar to weaken.
News 5: Tokyo market has thin trading due to holidays on the 21st and 23rd—an irregular week where prices are prone to jumping (September 21st)
Importance: ★★★☆☆
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Reason: During times with few participants, even small materials can easily cause prices to move significantly, changing the premises of risk management.
What happened? The Tokyo market this week is closed on the 21st (Respect for the Aged Day) and the 23rd (Autumnal Equinox Day). There are almost no major Japanese economic indicators, and with fewer participants during Tokyo hours, prices are prone to jumping even on minor buying and selling. Thin trading while intervention vigilance continues is a combination prone to overshooting in either direction.
Make it easier to understand!
To use a pool as an analogy, the fewer people there are, the more even small movements create large ripples. The market is the same; when there are few participants, a single order moves the market more than usual. Moreover, we are currently in a state of holding the “bomb” of vigilance against official intervention. When a large order enters a thin market, a movement that would normally be 20 sen can sometimes become 1 yen. That is why it is important this week to discount movements, keeping in mind that “the size of the price movement does not necessarily reflect the size of the material.”
Impact on USD/JPY
Short-term perspective (day trading): During times of low liquidity (early morning or holidays), wider stops and smaller positions than usual are safer.
Long-term perspective (swing trading): Since sudden fluctuations during thin trading do not necessarily mean a trend reversal, I want to confirm the direction based on movements after the Tokyo players return the following week.
Case where the scenario collapses: None in particular. However, be aware that sudden surges or drops during thin trading are often returned to their original levels on the next business day.
5. Today’s key points!
These are the three points that beginners should grasp today.
Point 1: Even with a rate hike, the market reverses on a single “word” from authorities
Last week, the “rate hike equals yen depreciation” trend was reversed by a single rate check warning. This is a good example of how, in the short term, the stance of authorities regarding supply and demand can sometimes outweigh the logic of interest rates.
Point 2: 158 yen is the “borderline with authorities”
The upside target is in the 158.40 yen range, which is the 200-day moving average. This is also an intervention alert zone. Remembering that it becomes easier to sell as the price approaches this level will help you avoid buying at the top.
Point 3: This week is “quiet until Thursday, the real action starts on Thursday”
Because Tokyo has a staggered holiday, the first half of the week is structured to be a wait-and-see period. Since movements are likely to occur after the US-China summit on the 24th, it is not too late to wait and see before making any major moves.
6. Summary
Last week was a historic week with double rate hikes in both Japan and the US, but what ultimately moved the USD/JPY was not the rate hike itself, but the “check” known as the authorities’ rate check. The week closed at 156.80 yen on Friday, and for this week, I expect a range centered around the high 156 yen level, with a ceiling in the 158 yen range and support in the 155 yen range. With Tokyo on a staggered holiday and thin trading, the direction will be determined by the US-China summit on the 24th and US indicators later in the week. I want to spend this week without rushing, waiting to see the results of overseas events before taking action.
Next Preview: The subject of the answer key for the next article will be how the USD/JPY fluctuates within the 156-158 yen range during the first half of this week. My main scenario is “wait-and-see centered on the high 156 yen range until the US-China summit passes, with a ceiling hit near 158 yen due to intervention fears.” Conversely, if US indicators are strong and the Fed’s hawkish stance is confirmed, I see a test of the 158 yen range, and if the US-China summit goes poorly, I see a yen appreciation toward the 155 yen range. I will start next time by looking at which of these branches the market took.
7. Bonus: Fundamental Trivia
What is a “rate check” actually doing?
A rate check is an act where the Bank of Japan (under the instruction of the Ministry of Finance) inquires about the exchange rate level with private financial institutions via phone or other means, asking “What is the current USD/JPY rate?” While asking for a price is something they do normally, when it is done during a period of rapid yen depreciation, it is conveyed to the market as a signal that “preparations for intervention have begun.” It is like a boxer showing a light jab to keep the opponent in check before throwing a punch. It is a psychological tactic used before firing live ammunition (actual intervention). Since the yen can move by 1 yen just by this being reported, it is also a cost-effective card for authorities to “move the market without using tax money.” That is precisely why there is the difficulty that if it is overused, its effectiveness diminishes.
8. Final Thoughts
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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 assume no responsibility for any investment results based on the information in this article.