1 week ago
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The dollar held steady with the dollar index sitting around 99.15, while the Japanese yen hovered near a seven-month high against the greenback. USD/JPY was trading at 153.49, not far from the 152.89 low hit the previous week.
The BOJ factor
Market consensus points to the Bank of Japan delivering a 25 basis point rate hike at its September 17-18 meeting.
Speculators have turned net long on the yen for the first time since February 2026.
Analysts caution that if the BOJ hikes but fails to telegraph further tightening, USD/JPY could snap back toward the 157-160 range.
US Treasury Secretary Scott Bessent’s recent comments have added another layer of pressure toward yen strength, reportedly affecting carry trade positions.
The Fed’s hand
Recent jobs and inflation data have pushed the estimated odds of a rate hike to somewhere between 60% and 86%, depending on which model you prefer.
The 2-year Treasury yield was hovering around 4.61%, a level that reflects expectations for continued Fed hawkishness.
Oil and geopolitics complicate everything
Oil prices have climbed above $100 per barrel amid escalating geopolitical tensions involving the US and Israel in Iran. For Japan, which imports the vast majority of its energy, expensive oil is a structural headwind that widens the trade deficit, puts upward pressure on inflation, and complicates the BOJ’s calculus around further tightening.
If the BOJ hikes and signals more to come while the Fed holds steady or strikes a balanced tone, USD/JPY could break convincingly below 153. If the BOJ hikes with no forward guidance paired with a hawkish Fed, USD/JPY could move back toward 157 or higher.
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