Japanese Yen is Soaring. Here's why.
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Also today, USDJPY briefly fell below 153 before rebounding; Yen now at strongest levels vs. US dollar since Feb 2026
JPY gained 3.6% vs. USD dollar so far this month; best-performing G10 currency by far
Bloomberg FX model forecasts 75% chance USDJPY trades between 151.62 - 156.92 over next 1-month
3 must-watch events for USDJPY traders: (1) US CPI data - Fri, Sept 11th; (2) Fed rate decision - Wed, Sept 16th; (3) BoJ rate decision - Fri, Sept 18th
The Japanese Yen has soared to its strongest level against the US dollar since February 2026!
Earlier today (Tue, Sept 8th), USDJPY briefly broke below the psychologically-important 153.00 level before rebounding, though this major FX pair is still holding around those 6-month lows.
NOTES:
USDJPY falls when the Yen is strengthening and/or US dollar is weakening
USDJPY rises when the US dollar is strengthening and/or Yen is weakening
So far this month (September 2026) ...
JPY has gained 3.6% month-to-date against the US dollar - the best performing G10 currency for the period by far.
NOTE: 2nd-best performing G10 currency = Norwegian Krone (NOK) +1% vs. USD month-to-date
To show how far the Japanese Yen has come:
as of July 28th, 2026: JPY was 4.4% weaker against the US dollar on year-to-date (ytd) basis, and G10's 2nd-worst ytd performer (worst performer = Swedish Krona)
surged 6.5% between July 28th - Sept 8th; G10's biggest gainer against the US dollar during that period
READ MORE (published Aug 2nd): USDJPY+ hits our upside target before Yen's historic intervention!
Why is the Yen surging (USDJPY falling)?
Expectations for Bank of Japan rate hikes
IMPORTANT: A currency tends to strengthen at the thought of its country's interest rates moving higher.
Markets now widely expect the Bank of Japan (BoJ) to raise its benchmark rates next week - on September 18th.
Furthermore, markets now predict a 76% chance that the BoJ will hike 4 times total (including next week's expected hike) by July 2027!
Think of the yen like a beach ball held underwater for years by ultra-low interest rates.
Now that the Bank of Japan is raising rates, the ball is shooting to the surface.
Strong wage growth and solid GDP data have given the BoJ the green light to hike further.
Carry trade unwind
During the era of low interest rates in Japan, traders had borrowed cheaply in yen to invest elsewhere, say in the US or emerging markets.
Now, with the prospects of interest rates moving back higher in Japan, many are rushing to unwind those bets all at once.
That act of sending funds back into Japan is turbocharging the move upward for the yen (USDJPY moves lower).
Japan also reportedly sold a record $87.8 billion in foreign reserves - likely US Treasuries - to fund currency intervention and defend (i.e. buy) the yen.
Where to next for USDJPY?
According to Bloomberg's FX model ...
There's a 75% chance that USDJPY will trade between 151.6 - 156.9 over the next 1-month period (through October 9th).
Analysts disagree whether this rapid strengthening of the Yen can be sustained, or whether USDJPY will snap back higher (US dollar reasserts its strength vs. The Japanese Yen).
Much will have to do with 2 critical central bank decisions next week:
Wed, Sept 16th: Federal Reserve - also widely expected to hike its own interest rates in the US
Fri, Sept 18th: Bank of Japan - widely expected to hike rates
Ultimately, the central bank that signals more rate hikes than its peers should see its currency strengthen.
Potential Scenarios
UPSIDE: USDJPY may rise back towards the psychological 157.0 level if the US CPI paves the way for a Fed rate hike on Sept 16th, with the Fed duly hiking as such, while the Bank of Japan then eschews more rate hikes.
DOWNSIDE: USDJPY may break below the psychological 152.0 level if the US CPI surprisingly softens, allowing the Fed to hold off on hiking rates, with the US central bank leaving its benchmark rates untouched on Sept 16th, while the Bank of Japan primes markets to epect multiple rate hikes in the months ahead.
READ MORE: (published Mon, Sept 7th): US inflation data due Fri, Sept 11th is a must-watch event for all traders and investors worldwide.
DISCLAIMER: This article is provided for general information purposes only and reflects publicly available data and research at the time of writing. It does not constitute investment advice, nor an offer or solicitation to buy or sell any financial instruments or digital assets. Past performance is not indicative of future results. Your ability to access or use any products or services mentioned may be subject to the laws and regulatory requirements of your jurisdiction.