The Japanese yen strengthened to 153.87 per dollar by press time, its strongest level since February, as a drop in USD/JPY below 155 set off stop-loss selling and options-related hedging flows. Market watchers said thin liquidity, caused by a U.S. market holiday, helped magnify the move.
Break below 155 triggers chain reaction in USD/JPY
According to Bloomberg, USD/JPY fell through the key psychological 155 level on the previous day. State Street Investment Management said 155 had served as an important support zone after past intervention efforts, making the break a notable signal for the market.
Traders said the move below 155 triggered a large number of stop-loss orders and forced options dealers to sell dollars in the spot market, which pushed the yen higher still. With U.S. markets closed for a holiday, lower liquidity made the broader swing more pronounced.
Japan’s FX reserves post a record monthly drop
Data released by Japan’s Ministry of Finance showed the country’s official foreign exchange reserves fell to $1.208 trillion at the end of August, down $79.6 billion from a month earlier. That was a decline of about 6.18% and the largest monthly fall on record.
The figures reflected Japan’s earlier currency intervention campaign. The report said authorities spent JPY 15.4 trillion from late July to late August buying yen and selling dollars. While the intervention reduced foreign exchange assets, it also restrained speculative short positions against the yen and helped provide support for the currency’s recent rebound.
Rate-hike expectations rise before BOJ meeting
Attention is now centered on the Bank of Japan’s upcoming monetary policy meeting. BOJ board member Hajime Takata previously said a 25-basis-point rate increase was not a settled matter and that back-to-back hikes could not be ruled out. Those remarks strengthened expectations that policy normalization remains under consideration.
As policy paths in Japan and the United States diverge, investors have started to reassess carry-trade positions. The report said the yen’s hedging premium and market volatility gauges have both climbed to multi-month highs, showing that traders are increasingly pricing in the possibility of tighter policy.
Rebalancing flows and improved trade conditions add support
Beyond policy expectations and market positioning, real-money flows and broader macroeconomic changes were also cited as support factors for the yen. Market participants speculated that Japan’s Government Pension Investment Fund, or GPIF, may adjust its asset allocation, while portfolio rebalancing demand at the start of the month added buying interest for the currency.
At the same time, lower international crude oil prices have reduced Japan’s energy import costs and improved the country’s terms of trade, adding another layer of support for the yen.