FX selling keeps yen gains from sticking as BOJ hike bets rise

2026-08-09

Yen selling after intervention provided support

After the Japan-US coordinated intervention at the end of July, the yen briefly approached 155 to the dollar as retail investors in foreign exchange margin trading bought back yen to cover losses. But the pullback before 155 is thought to have been driven by FX trading that shifted to yen selling and dollar buying immediately after the intervention.

Trading volume surges at end-July

According to Takuya Kanda of Gaikaex.com Research Institute, FX trading volume at the end of July swelled to more than four times the pre-intervention level. Gaikaex.com had estimated July 31 volume at around twice normal, but later confirmed yen selling and dollar buying that far exceeded expectations immediately after the intervention. This suggests the market's bearish view on the yen was stronger than expected.

Rebound at around 155

The fact that the market was pushed back before 155 is significant. When the government conducted yen-buying intervention during Golden Week, the market also retreated several times before reaching the same level. As a result, in the foreign exchange market in the first week of August that followed, yen-selling orders clustered in the 155-158 range, and even after deploying the trump card of coordinated intervention, the yen in the Tokyo market was pushed back from the 155 level at the start of the week to briefly 158 by the weekend.

Focus turns to BOJ rate hike

The government remains prepared to intervene to buy yen, but the view is spreading that the effect in establishing a stronger yen phase will be limited. Market attention is shifting to the BOJ's policy rate hike, which US Treasury Secretary Bessent also hinted at. A rate increase at the BOJ's next monetary policy meeting in September is gradually being priced in.

However, Daisuke Karakama of Mizuho Bank said that even as the Federal Reserve also leans toward a rate-hike path, a standard 0.25 percentage point increase would at best slow the yen's weakening and would make it difficult to reverse the trend toward yen strength. A September rate hike is seen as the minimum response needed to halt yen weakness.

Milestones in historic yen weakness

After spring 1995, when the BOJ faced a rapid yen surge beyond 80 to the dollar that cooled the economy, it cut rates in September that year by 0.50 percentage point, twice the usual size, helping push the yen back into the 100-yen range.

By contrast, in the historic yen weakness that began in 2022, the currency fell to the 150 range in 2022 and the 160 range in 2024, and downward pressure on the yen is strengthening again in 2026. Will 2026 be a year when the dollar approaches 170 yen, or a year that brings an end to historic yen weakness? For the government and the BOJ, the second half of the year will be a critical test.

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