USD/JPY extended its slide as the yen hit a seven-month high, with the pair breaking below the 155.00 support zone. A reflationist adviser to Prime Minister Sanae Takaichi now expects the Bank of Japan to raise rates this September and keep hiking roughly once a quarter into next year, while traders turn to Friday's US CPI report for the next directional cue.
The dollar had spiked after August's US nonfarm payrolls report showed job growth almost tripling the consensus estimate of 56,000, but the move faded quickly as market attention shifted to this week's inflation data.
Yen breaks key support as carry trades unwind
USD/JPY broke below the key 155.00 support zone and extended its drop as selling pressure increased, with the major 152.30 level now the next target for sellers. The yen reportedly strengthened after hawkish comments from BoJ board member Takata, but the move is more likely driven by carry-trade deleveraging than a genuine hawkish repricing, given how extreme short positioning on the yen had become.
BoJ Governor Kazuo Ueda said last week the central bank will debate raising rates, including in September, with a focus on whether inflationary risks are heightening.
A reflationist now bets on a September hike
Takuji Aida, an economic adviser to Takaichi and among the most vocal opponents of BoJ rate hikes, said Monday he moved forward his forecast for the next increase from January 2027 to this month, as September offers a narrow window before an extraordinary parliamentary session convenes in early October. He expects the BoJ to follow up with another hike by January before reverting to roughly one increase every six months. Markets have nearly fully priced in a 25 basis point hike to 1.25% at the BOJ's September 17-18 meeting. US Treasury Secretary Scott Bessent added to the pressure last week, voicing strong support for decisive monetary steps to combat yen weakness.
US CPI is the next test for the dollar
Fed governor Waller said before the payrolls report that he would support holding rates steady at the upcoming FOMC meeting unless a hot CPI print changes his view. A soft or in-line reading would likely weigh on the dollar, while an upside surprise in core monthly inflation could trigger a hawkish repricing. Traders get the US PPI report and jobless claims figures on Thursday, ahead of Friday's CPI release. Since September's BoJ rate hike is already priced in, forward guidance on the pace of future tightening will matter more for USD/JPY than the decision itself.
Sources: InvestingLive, Investing.com
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