USD/JPY slipped below the closely watched 155 level on Sept. 7 and extended losses beneath 154.50 in early Sept. 8 trading, breaking an area that had held after Japan’s Golden Week intervention period and another bout of yen support in late July. The move places the pair’s direction increasingly in the hands of diverging Bank of Japan and Federal Reserve expectations rather than short-lived reactions to currency intervention.
The zone around 155.50, which marked lows following previous intervention episodes, has become the immediate level to watch. A sustained failure to recover 155 would turn a former support area into resistance and leave the yen with a clearer technical path toward levels last seen earlier this year.
BOJ rate expectations gain weight
The yen’s advance followed stronger signals that the Bank of Japan is keeping additional rate increases under active consideration. Bank of Japan Governor Kazuo Ueda said policymakers would fully discuss the case for rate increases at every meeting, leaving the Sept. 17–18 policy meeting open to action even if no decision has been pre-committed.
Hajime Takata, a Bank of Japan board member, added that the central bank should be prepared to raise rates flexibly rather than adhere to a policy path shaped by market expectations. Takata later played down the likelihood of a large move at the next meeting, but his remarks reinforced the view that the BOJ’s decisions could arrive faster than traders had previously priced in.
That shift matters for USD/JPY because the currency pair has long been supported by the wide gap between U.S. and Japanese interest rates. Higher Japanese rates would increase returns available on yen assets and raise the cost of borrowing yen to fund positions in higher-yielding currencies or riskier markets.
U.S. Treasury Secretary Scott Bessent also used meetings around the G20 to sharpen Washington’s public language on Japan’s fiscal and monetary settings. Following Bessent’s meeting with Ueda, the U.S. Treasury referred to currency communication, inflation expectations and the need to avoid excessive exchange-rate movements. The messaging connected a stronger yen with Japan’s need to address domestic policy conditions rather than treating the exchange rate as an isolated market issue.
Japan’s budget plans add to policy scrutiny
Japan’s fiscal outlook has become another factor in the yen discussion. Japanese government bodies submitted roughly 143 trillion yen in budget requests for fiscal 2027, compared with an initial budget of about 122 trillion yen in the current fiscal year.
The scale of those requests puts pressure on policymakers to explain how fiscal spending, inflation and interest-rate normalization will fit together. A larger budget does not automatically produce a stronger or weaker yen, but it gives greater importance to the BOJ’s assessment of demand, price pressures and the government’s financing needs.
Attention has also returned to the Government Pension Investment Fund, Japan’s largest public pension manager, which oversees approximately 300 trillion yen. Finance Minister Satsuki Katayama said in July that the government wanted to explore ways of encouraging GPIF and other pension funds to increase investment in Japanese financial assets.
Speculation increased after the GPIF board met on Aug. 21 and a subsequent agenda referred to a “Basic Portfolio Review Project Team.” Reports that the board’s August meeting was its first during that month in roughly seven years added to scrutiny of whether the fund could adjust its domestic allocation.
Any move toward a larger domestic weighting could have market consequences beyond the pension system. GPIF has historically been a major buyer of overseas bonds and equities, so a reallocation toward Japanese assets could reduce future foreign-currency demand from one of the country’s largest institutions. The available information does not establish that a portfolio change has been approved, but the review has become relevant as the yen tests a major technical threshold.
U.S. inflation data now shapes the other side of the trade
The dollar has received less support from recent U.S. labor data than some traders expected. August nonfarm payrolls increased by 162,000, while year-on-year wage growth slowed to 3.1%. The combination pointed to continued hiring but weaker evidence that labor costs are building fresh inflation pressure.
Federal Reserve Governor Christopher Waller and other U.S. officials have pointed to the Sept. 11 Consumer Price Index release as a crucial remaining input before the Fed reaches its next policy judgment. Softer inflation would strengthen the case for lower U.S. rates, narrowing the yield advantage that has supported the dollar against the yen.
Political pressure has added another layer to the Fed debate. President Donald Trump has called for lower rates and warned of action if the central bank does not cut. The Fed’s formal decisions remain independent of those demands, but the comments have kept public attention fixed on how quickly policy could ease if inflation continues to cool.
The result is a market where both sides of USD/JPY are moving at once: Japan is debating when to raise rates again, while the United States is assessing whether conditions permit cuts. That combination is more durable than a yen rally driven solely by official intervention, which can reverse if interest-rate expectations remain unchanged.
Technical levels become more consequential
The move below 155 also carried USD/JPY through the 38.2% Fibonacci retracement of its advance from above 139.50 in April 2025 to just below 164 in July 2026. Fibonacci retracements are commonly used by traders to identify potential support and resistance after a major price move.
The next levels in focus are the January low below 152.50 and the 50% retracement area above 151.50. Those zones would become more relevant if the pair remains below 155 and incoming U.S. inflation data further weakens expectations for U.S. rates.
A rebound above 155 would ease immediate pressure on the dollar and suggest that the break was temporary. Failure to reclaim it would leave the market focused on the BOJ meeting, the U.S. CPI report and any clearer indication that GPIF may shift part of its vast portfolio toward Japanese assets.
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