The dollar-yen pair staged a dramatic whipsaw in New York foreign exchange trading on the 4th, initially surging to 156.75 yen after the August U.S. employment report far exceeded market expectations, before plunging to 155.36 yen. Dollar buying led the initial move alongside a rise in U.S. long-term yields, but once that buying ran its course, the yen was bought back on the back of yen-buying verbal intervention from Japanese currency authorities and speculation of an additional rate hike by the Bank of Japan. The pair ultimately settled in the low-156 yen range after paring losses.
In Tokyo trading today, the 7th, participation is expected to thin out as U.S. and Canadian markets are closed for the Labor Day holiday. The dollar-yen pair is likely to remain confined to a limited range of roughly 155.50 to 156.50 yen. With Japanese and U.S. monetary policy announcements scheduled for mid-September, traders are likely to remain reluctant to build aggressive positions.
Turbulence Triggered by the U.S. Employment Report
The U.S. Labor Department reported on the 4th that nonfarm payrolls rose by 162,000 in August from the prior month, far exceeding the consensus forecast of a 56,000 increase. The result reignited speculation of Federal Reserve policy tightening, accelerating dollar buying alongside a rise in U.S. long-term yields. The dollar-yen pair briefly spiked to 156.742 yen.
However, the market’s tide shifted abruptly once the initial buying wave subsided. Reports that Vice Finance Minister Mimura stated Japan remains “on high alert and ready to act” sparked yen buying on heightened vigilance over potential currency intervention. Additionally, speculation that the Bank of Japan would proceed with an additional rate hike at its September meeting further supported the yen.
Compounding the pressure was President Trump’s demand for Fed rate cuts. The president was reported to have said he would “halt trade with countries running surpluses against the U.S.” if rates were not lowered, and uncertainty surrounding U.S. monetary policy weighed on the dollar. The dollar-yen pair briefly plunged to 155.336 yen, but as New York trading entered its final hours, the pair pared losses to around 156.284 yen as market participants sought to assess this week’s upcoming U.S. CPI and PPI releases.
Tug-of-War Over U.S. and Japanese Monetary Policy
Monetary policy announcements are scheduled on both sides of the Pacific this month, with market attention squarely focused on their outcomes.
On the Bank of Japan front, the prevailing view is that a 0.25% rate hike at the September meeting is already priced in. The market’s focus has shifted to whether the central bank will opt for a larger 0.50% hike, or whether a 0.25% move would keep expectations alive for an additional hike at the December meeting. The BOJ had previously been expected to raise rates by 0.25% roughly once every six months, but depending on price trends, an accelerated tightening timeline could come into view. While no remarks from Japanese financial authorities are scheduled today, the market could react nervously to various media reports.
On the U.S. side, divisions among Fed officials over monetary policy have become increasingly pronounced. Last week, Fed Governor Waller stated he would “support holding rates steady if the disinflationary trend continues,” and multiple other officials were reported to favor keeping rates unchanged. Meanwhile, at last month’s Jackson Hole symposium, Fed Chair Warsh signaled a willingness to raise rates, and Cleveland Fed President Hammack also struck a hawkish tone, stating that “Fed policy is not restrictive and inflation is too high.”
Against this backdrop, according to CME’s FedWatch Tool, the probability of a rate hike at the next FOMC meeting in September rose from 50% as of the 3rd to nearly 60% on the 4th following the employment report. This week brings U.S. PPI and CPI releases, and if stubbornly high inflation is confirmed, dollar buying on rate-hike expectations could materialize. Conversely, any remarks suggesting waning rate-hike expectations would likely weigh on the dollar.
Firm Support in the 155-Yen Zone and This Week’s Key Events
The dollar-yen pair found support near 155.30 yen on two separate occasions last week. The August 3 low of 155.23 yen, along with the 155.30 yen lows recorded in Tokyo morning trading and the previous day, are functioning as support levels. Unless a strong catalyst for dollar selling and yen buying emerges, a decisive break below the 155-yen level appears unlikely.
This week’s key schedule is as follows:
| Date | Event | Key Focus |
|---|---|---|
| September 7 | U.S. Labor Day | U.S. markets closed; thin trading expected |
| This week | U.S. PPI release | Sticky inflation would strengthen rate-hike expectations |
| This week | U.S. CPI release | Same as above |
| Mid-September | Bank of Japan policy meeting | 0.25% hike priced in; whether a larger hike materializes |
| Mid-September | FOMC | Rate-hike probability risen to nearly 60% |
Note: Schedule is tentative and subject to change.
With the dollar-yen pair having confirmed the firmness of support in the 155-yen zone, the market is entering a phase where position adjustment is likely. Ahead of this week’s U.S. inflation indicators and the Japanese and U.S. monetary policy announcements, nervous, directionless trading is expected to persist. Particularly today, with U.S. markets closed and liquidity thin, relatively small trading volumes could move the market, warranting caution against unexpected news or remarks from officials.
The euro-dollar pair fell to $1.1585 following the U.S. employment report, but the prior day’s low of $1.1584 served as near-term support, and a turn lower in U.S. long-term yields provided additional support, lifting the pair back to around $1.1625. With European participation also limited, the pair is expected to struggle for direction much like the dollar-yen.
