The sharp strengthening of the yen against the dollar from 2 to 3 September was attributed in reports to US interest rate trends, the outlook for Japanese interest rates, and remarks by US Treasury Secretary Bessent at the G20. This article presents the factors that led to yen strength and dollar weakness as matters of fact.
From 2 September onward, USD/JPY moved from around ¥160 to the ¥158 range, reflecting yen strength and dollar weakness. On that day, the weaker-than-expected US ADP employment report and a cautious stance on rate hikes by a Federal Reserve president were highlighted, while a modest decline in US interest rates was cited as one factor behind the yen's appreciation.
However, the yen continued to strengthen throughout the day on 3 September, moving from around ¥159 to the mid-¥155 range. During US trading hours, comments by Federal Reserve Governor Waller expressing reservations about further rate hikes also prompted a decline in the US 2-year Treasury yield and were cited as a factor behind dollar weakness.
That said, the yen's appreciation could not be explained solely by movements in US interest rates, and some observers pointed to the possibility that factors on the Japanese side were also at work. One point cited was that since 2 September, Japan's 10-year government bond yield has declined in tandem with US long-term interest rates.
With the BOJ's monetary policy meeting scheduled for mid-September, some views held that expectations surrounding BOJ policy may have driven the yen higher, even though additional catalysts were limited. Reports that the US Treasury had increased its buybacks of long-term Treasury bonds also put long-term interest rate trends in the market spotlight.