The yen rose to its highest level against the dollar since February on September 7, with the dollar-yen rate around 155, a daily drop of about 2.07%, briefly falling below the rebound high set after previous government intervention in the foreign exchange market.

The dollar-yen rate had previously touched above the psychological level of 160.00, but the latest quote has dropped to around 155.40. Technically, the 200-day moving average is at 158.46 and the 100-day moving average is at 159.97, both of which have been breached from above; support levels are at 155.23, 155.04, and 154.50.

Hajime Takata, a member of the Bank of Japan's Policy Board, publicly stated that the central bank should adopt a "more flexible approach" to future rate hikes and should not stick to the traditional pace of "raising rates every six months" or systematically limit each rate hike to 25 basis points; he defined 2026 as a year of "structural institutional change" for the Japanese economy.

Atsushi Mimura, Japan's "currency diplomat" and finance official, expressed that he is "neither reassured nor satisfied" with the current exchange rate levels and reiterated that authorities are "always ready to intervene".

The Bank of Japan will hold a monetary policy meeting in mid-September, and the market has fully priced in a 25 basis point rate hike, with some traders expecting another rate hike in December.

In terms of capital flows, the recent strengthening of the yen has been driven by both the convergence of interest rate differentials between Japan and the U.S. and inflows of safe-haven funds. On one hand, the market has formed a consensus expectation for a rate hike by the Bank of Japan in September, which has compressed the interest rate differential that previously supported "yen carry trades" (borrowing yen to buy high-yield dollar assets), forcing positions that short the yen and long dollar assets to cover and buy back yen. On the other hand, the U.S. ADP employment report for August showed an increase of 38,000 jobs (below the expected 47,000), which partially weakened the confidence of dollar bulls. Traders who shorted the yen have been under pressure during this round of volatility, while those who positioned for yen longs or held foreign exchange exposure have benefited from this appreciation.

Source: Public Information