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The Japanese Yen has stopped trading the Federal Reserve

FXStreet · 2026-09-07T17:01:44Z
The Japanese Yen has stopped trading the Federal Reserve
  • USD/JPY trades just above 154.00, down close to two Yen, at six-month lows.
  • Fed hike odds sit at 58% after a 162K payrolls print against 53K consensus.
  • Swaps price a Bank of Japan hike on September 18 at close to 97%.

USD/JPY trades just above 154.00 after giving up close to two Yen on Monday, its weakest in six months. Nothing confirms an intervention, and Tokyo has no level left to defend at six-month Yen highs. The Yen crosses are not leading and AUD/USD sits near its highest since mid-May, which is not the tape of a carry unwind. What moved is the Bank of Japan (BoJ) rate path.

The Dollar leg moved the wrong way

Friday's payrolls printed 162K against a 53K consensus, with June and July revised up and unemployment steady at 4.1%. Hike odds for the September 15-16 Federal Reserve meeting rose to 58% from 49.4%, and the two-year Treasury yield reached its highest since January 2025. That is the Dollar leg of this pair moving in the Dollar's favour. The next session made a fresh six-month low.

A pair driven by the rate differential does not fall on a payrolls beat that widens it. This one lost roughly two Yen instead. USD/JPY has now given up roughly six Yen since the September 2 high just above 160.00, and the American data landed in the middle of that run without interrupting it. The Dollar leg is no longer setting the direction, and it is now the part of the trade that has to accommodate the other one.

The last domestic holdout folded

Tokyo's policy rate is 1% and has been since June. What changed over the past fortnight is the expected cadence. Swaps put a quarter point on September 18 at close to 97% and give October roughly a one-in-four chance, which would break a rhythm of about one move every six months. A board member argued last week that 2026 marks a change of phase and that consecutive hikes are possible.

The domestic case against that has gone with it. The Prime Minister's own economic adviser, until recently the loudest opponent of tightening in her circle, now expects a hike this month and another by January. A government elected on cheap money and expansionary spending no longer has an economist arguing for the first half of it.

The bond market moved first and moved further. The ten-year Japanese Government Bond (JGB) yield cleared 3% on September 1 for the first time since 1996, and the two-year is at its highest since 1995. Japan imports nearly all of the Crude Oil pushing those numbers, and the war that prices it has been running since February. Import-driven inflation is the sort a central bank traditionally looks through. This one arrives through the exchange rate, which is the channel a rate rise actually reaches.

Both banks hike and the gap does not move

Tokyo is at 1% and the target range in Washington is 3.50% to 3.75%. Deliver the quarter point priced at each meeting and the differential goes from roughly 2.6 percentage points to roughly 2.6 percentage points. Nothing about the level of the carry changes in the next fortnight.

What is being traded is the expected path, and paths are cheaper to reverse than levels. The Japanese leg is priced at 97% and the American leg at 58%, so almost all of the residual uncertainty sits on the Dollar side. A hot inflation print on Friday would not change a thing in Tokyo and would still be the fastest way for the pair to get two Yen back.

The week's uncertainty is all American

Japan reports first. Labour cash earnings for July land at 23:30 GMT Monday with a 3.9% YoY consensus after 3.4%, followed at 23:50 GMT by the current account, seen at ¥2.87 trillion after a ¥92.3 billion deficit, and the second estimate of second-quarter Gross Domestic Product (GDP), seen at 0.4% on the quarter against 0.3%. None of it moves a hike the swaps have at 97%.

Thursday and Friday carry the decision. The Producer Price Index (PPI) lands Thursday at 12:30 GMT, seen at 0.4% on the month after a flat July and 5.3% YoY after 4.7%. The Consumer Price Index (CPI) follows Friday at the same hour, seen at 0.4% on the month after 0.1%, with the annual rate steady at 3.4% and the core measure easing to 2.4%. The Federal Reserve meets September 15-16 and the Bank of Japan on September 17-18.

Levels and bias

Resistance: The 154.50 area caps the bounce, with Monday's rebound stalling short of 155.00 and handing most of it back. Above that, 156.00 is Monday's open and sits just beneath the session high. The 200-day Exponential Moving Average (EMA) near 158.00 broke on September 3 and now caps any retracement, with the 50-day EMA just under 159.50 above it.

Support: The 154.00 handle is the whole map. Monday's low sits a few pips above it and the pair has spent the European afternoon within forty pips without breaking it. Beneath it the chart carries no traded structure in five months, which leaves 153.50 and 153.00 as round figures rather than tested levels.

Bias: Bearish while 155.00 caps. The daily Stochastic Relative Strength Index (Stoch RSI) has fallen only five points to 82 while the pair lost six Yen, so no oversold reading is available to support a bounce and the oscillator has its whole range left to give back. The intraday reading near 76 rose through the afternoon while price held near the low, which is a corrective bounce rather than a base. Rallies into 155.00 are for selling until Friday's inflation print gives the Dollar leg something to work with. A daily close above 155.50 invalidates the call.

USD/JPY daily chart


Japanese Yen FAQs

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.