The Japanese yen strengthened to open the week, pushing USD/JPY below 155 and toward 153, according to an analysis by Investing.com. Thin liquidity around the US holiday may have amplified the initial move, but the follow-through suggests the decline extends beyond a simple liquidity effect.
The move appears driven primarily by yen-side dynamics rather than a broad rejection of the US dollar. Markets are increasingly pricing in the possibility of a more hawkish Bank of Japan, coupled with expectations that the Government Pension Investment Fund — Japan's sovereign wealth fund known as GPIF — could raise its allocation toward domestic assets. Together, those factors are prompting investors to unwind yen-funded carry trades and rebuild positions in Japanese assets, the analysis noted.
From a technical standpoint, USD/JPY remains within a descending channel. The break below 155.00 has further weakened the structure, with 152.00 now identified as the next meaningful support level — a floor that held earlier in the year. A decisive break below 152 would open the path toward 150.00, the analysis said.
Attempting to fade the yen rally carries risk, the analysis cautioned. Even if the short-term fundamental move appears stretched, carry-trade unwinding can become self-reinforcing: a stronger yen forces leveraged positions to reduce exposure, generating additional yen buying and further momentum.
The broader question is whether yen strength can persist if the Federal Reserve tightens policy next week. The wider dollar backdrop remains relatively constructive: strong US economic data and oil trading near $100 per barrel argue against an aggressively dovish Fed. Yet markets are pricing in only about 15 basis points of tightening for September, leaving room for US yields and the dollar to reprice higher if incoming inflation data stay firm.
US equity futures pointed lower ahead of Thursday's session. In a thin calendar, weaker risk sentiment could offer some dollar support, though likely insufficient on its own to reverse the yen's current momentum.
The key event for the week is Friday's US inflation report. A hotter print would bolster the case for Fed tightening and could challenge the USD/JPY sell-off, while a softer reading would strip away one of the dollar's remaining supports and potentially allow the move toward 152 and 150 to continue, the analysis said.
