The yen soared to a six-month high—and prompted the market to sell dollars

On September 8, the Japanese yen strengthened by 1% to 152.89 per dollar, its highest level since February. Since the beginning of September, it has gained nearly 4% and has become the top performer among G10 currencies. The yen’s sharp rise prompted options traders to sell dollars, which only reinforced its appreciation, according to Bloomberg.

Some traders attributed the Japanese currency’s appreciation to low liquidity due to the September 7 holiday in the U.S., while others linked it to the currency breaking through the 155-yen-per-dollar mark: large stop-loss orders were triggered, forcing options market participants to sell the U.S. dollar, according to Bloomberg.

This paves the way for further appreciation of the yen, according to Rodrigo Catril, a strategist at National Australia Bank. He suggested that the yen could rise to 152.1 per dollar, which would be its highest level since the beginning of the year, the agency notes.

The rally began last week when growing expectations of a rate hike by the Bank of Japan shifted market sentiment, according to Bloomberg. The agency believes that the movement, which was spurred by joint interventions by U.S. Treasury Secretary Scott Bessent and Japanese Finance Minister Satsuki Katayama, may now “take on a life of its own.” The prospect of a tightening in the Bank of Japan’s monetary policy provides fundamental support for the yen.

“The market is now almost fully pricing in a 25-basis-point rate hike at next week’s Bank of Japan meeting,” says OCBC currency strategist Christopher Wong, as quoted by The Wall Street Journal. Confidence in this outlook has strengthened following the release of macroeconomic data: real wage growth in Japan in July was the fastest since May 2021, and the country’s second-quarter GDP estimate was revised upward, according to Nikkei Asia.

Expectations of an imminent rate hike have reduced the appeal of carry trades, which had been contributing to the yen’s weakness. Japan is the most popular market for such transactions. Traders borrow the local currency at a low interest rate and use it to buy higher-yielding assets—such as those denominated in dollars. To close out their positions and repay the loan, market participants must sell these assets and buy yen again. Analysts have cited the unwinding of these trades as one of the reasons for the current rally, the Nikkei notes.

The yen strengthened not only against the U.S. dollar but also against the euro, the British pound, and the Australian dollar— a proxy for the yuan. Therefore, the rally cannot be explained solely by the dollar’s weakness, according to Bloomberg. The options market shows just how unexpected this move was: the two-week implied volatility of the dollar/yen pair reached its highest level since May 2025, the agency reports.

However, the significant difference between interest rates in Japan and the U.S., along with the Asian exporting nation’s trade deficit, continue to weigh on the yen, warns Aozora Bank analyst Akira Moroga. In his view, once market participants finish their current position adjustments, the dollar could return to the 155-yen level.

This article was AI-translated and verified by a human editor