Yen Jumps 5 Yen in Two Days as ‘160-Yen Trauma’ Triggers Yen Carry Trade Unwind

【Financial News, Tokyo—Correspondent Hye-jin Seo】The yen rose by more than 5 yen against the dollar in just two days, entering the 155-yen range. The move was driven by speculators unwinding their yen-selling positions all at once amid concerns that Japan’s foreign exchange authorities could intervene in the market. As expectations for a U.S. rate hike weakened while the possibility of another Bank of Japan (BOJ) hike increased, the yen’s advance accelerated.
In the Tokyo foreign exchange market on the morning of the 4th, the yen was trading at 155.92–155.94 yen to the dollar as of 8:30 a.m. This was up 1.11 yen from 5 p.m. the previous day. The yen had earlier risen as high as 155.30 yen per dollar in the New York market on the 3rd (local time), reaching its highest level in a month.
The yen, which had been in the low 160-yen range against the dollar as recently as the night of the 1st, surged by more than 5 yen in two days. Against the euro, it also rose 0.97 yen from the previous day to 181.25–181.30 yen per euro at the same time.

The immediate trigger for the yen’s surge was a short squeeze by speculators. Investors who had bet on a weaker yen bought it back to limit their losses, creating a cycle in which yen strength prompted further buying.
In the New York market, speculation spread that Japan’s foreign exchange authorities had conducted a “rate check,” asking financial institutions for exchange-rate quotes ahead of a possible intervention. Even before any actual intervention was confirmed, investors began reducing their yen-selling positions, sending the yen up by about 1 yen against the dollar in a short period.
In the Tokyo market, buybacks intensified after the yen broke through the 200-day moving average of 158.44 yen per dollar in the direction of yen strength. The 200-day moving average is a key indicator investors use to assess medium- to long-term exchange-rate trends.
A research team at a major European bank analyzed, “Once the yen broke through the 200-day moving average, leveraged investors were forced into a situation where they had no choice but to buy back their short yen positions.”
A yen carry trade involves selling the low-interest-rate yen and investing in currencies or assets with higher interest rates. When the yen weakens, investors can earn both the interest-rate differential and foreign-exchange gains. But when the yen surges, exchange-rate losses erode their interest income. Because these trades are often leveraged, sharp currency movements can trigger a chain reaction of position unwinding.
According to the Commodity Futures Trading Commission (CFTC), as of the 25th of last month, leveraged funds’ net yen-selling positions were more than twice their average level since 2020. They had temporarily declined after coordinated intervention by the United States and Japan but expanded again over the past two weeks.
Michael Ashley Schulman, a partner at Cerity Partners, said, “Among traders who suffered losses from the coordinated U.S.-Japan intervention at the end of July, the practice of selling dollars first once the exchange rate reached 160 yen per dollar had taken hold.” He added, “This time, memories of the intervention resurfaced, causing yen buying to expand in a self-reinforcing manner.”

Diverging expectations for U.S. and Japanese monetary policy also fueled the yen’s strength.
Christopher J. Waller of the Federal Reserve System (Fed) said in a speech on the 3rd (local time) that inflation “has begun to show signs of slowing.” He said that if this trend continued, he would support keeping the policy rate unchanged at the Federal Open Market Committee (FOMC) meeting scheduled for the 15th and 16th.
The probability of a September rate hike implied by the U.S. short-term interest-rate futures market fell to about 50% in the early hours of the 4th Japan time, from approximately 63% the previous day.
By contrast, expectations for a BOJ rate hike strengthened. A foreign media outlet reported, citing multiple sources familiar with the matter, that the BOJ was highly likely to raise its policy rate by 0.25 percentage points to an annual 1.25% at its monetary policy meeting this month.
BOJ Policy Board member Hajime Takata also said on the 2nd that the central bank should respond nimbly rather than being bound by a rate-hike interval of roughly once every six months or an increase of 0.25 percentage points. Markets are even discussing the possibility of consecutive BOJ hikes or larger increases.
Expectations that the Government Pension Investment Fund (GPIF) would reduce its overseas-asset holdings and increase its yen-denominated assets also supported yen buying. After it became known that the GPIF had unusually held a management committee meeting on the 21st of last month, during the summer holiday season, speculation spread that it was reviewing its basic portfolio.
The next key turning point is 155 yen to the dollar. If U.S. jobs data are weak, expectations for a Fed rate hike could fall further, potentially pushing the yen higher. Conversely, if employment is stronger than expected, the yen’s advance could lose momentum and the market could return to a weaker-yen phase.
Kit Juckes, chief foreign-exchange strategist at Societe Generale, predicted, “The carry strategy of selling the yen to earn interest income whenever the yen strengthens has now become risky.” He added, “This could mark a turning point, with the yen potentially appreciating to 140 yen per dollar over a period of several years.”
[email protected] Hye-jin Seo Reporter