Currency analysts see USD/JPY easing in coming months as intervention risk and a September BoJ hike collide with renewed US pressure on Tokyo.
The US Dollar to Japanese Yen (USD/JPY) exchange rate traded around 160.03 on Tuesday, with the Yen once again struggling to capitalise on mounting expectations for tighter Bank of Japan policy.
USD/JPY gained 1.38% during August and has recovered roughly half the fall triggered by the joint US-Japan intervention at the end of July.
Rabobank nevertheless sees room for USD/JPY to move lower.
“In our view, fear of further FX intervention in support of the JPY coupled with the prospect of a BoJ September rate hike suggests scope for USD/JPY to trade in the 158-157 area on a 3-to-6-month view.”
The call now has an unusual extra ingredient: Washington is openly pushing Tokyo towards tighter monetary policy.
US Treasury Secretary Scott Bessent said at the weekend that he expected BoJ Governor Kazuo Ueda to “do the right thing” before going further on Monday.
“I have information that the market doesn’t have, and it’s my belief that the Japanese government and the BOJ will do the things that will lead to a stronger yen,” Bessent told CNBC.
Not exactly subtle.
Bessent Pressure Changes the September Calculation
Rabobank notes that this is hardly Bessent’s first intervention in the BoJ debate.
“US Treasury Secretary Bessent has made his views on Bank of Japan policy clear before. In August 2025 he aired the opinion that the BoJ is ‘behind the curve’ on inflation.”
The latest comments followed meetings with Ueda and Japanese Finance Minister Satsuki Katayama, and Reuters reports that a September hike is now close to fully priced.
The Bank of Japan’s next policy meeting is scheduled for 17-18 September.
Rabobank thinks Japan already has enough domestic justification to act without encouragement from Washington.
“Last week’s release of August Tokyo core, core CPI inflation at 2.0% y/y was the third straight month of acceleration.”
“The presence of tight labour market conditions and a resilient economy combined with elevated oil prices and a weak JPY all increase the risk of second order price effects in Japan, suggesting there are good reasons for the BoJ to raise rates again.”
That is the straightforward part of the story.
The more interesting question is why the US Treasury Secretary is leaning so publicly on another major central bank.
Rabobank puts it this way:
“The market is likely to start with the questions of why the Treasury Secretary has broken international precedent by pressuring another country’s central bank and what are the benefits to him for a tighter monetary policy in Japan?”
The answer may sit in the bond market as much as the currency market.
The Yen Story Is Also a US Treasury Story
Japan remains the largest foreign holder of US Treasuries, and higher Japanese yields create a growing incentive for domestic investors to bring capital home.
There is a plumbing issue here as well, and it matters.
Rabobank notes that the July joint intervention agreement indicated Japan would avoid selling US Treasury securities during further Yen operations and instead raise Dollars through a Federal Reserve repo facility.
“It is not known if this was a condition of US participation, though it caught the market’s attention.”
“Japan is the largest foreign holder of US treasuries, and the inference was that the US Treasury was keen to avoid selling pressure on US debt.”
Weeks later, Bessent announced that the Treasury would at least double some long-duration bond buybacks, reviving arguments that Washington was trying to dampen long-term borrowing costs.
Japanese yields are moving in the opposite direction.
The 10-year JGB yield reached 3% on Tuesday for the first time since 1996, while the two-year yield hit its highest level in 31 years as investors priced stronger inflation and quicker BoJ tightening.
This is where the cross-market argument gets rather more interesting.
If Japanese bonds become sufficiently attractive, insurers and pension funds have less reason to own foreign debt, including Treasuries.
Rabobank points to Finance Minister Katayama’s suggestion that Japan could alter the GPIF pension fund’s allocation “to make substantially greater investments in Japanese financial assets”.
“Either way, it likely caught the attention of the US Treasury.”
“It can be assumed that Bessent would favour that the Japanese authorities found a way to support the JPY, which did not involve the risk of further pressure on US treasuries.”
That interpretation fits the unusual pattern of recent US policy: Washington helped Japan buy Yen, Treasury buybacks were increased soon afterwards, and Bessent is now openly encouraging higher Japanese policy rates.
As we noted in our recent USD/JPY weekly forecast, intervention broke the earlier momentum but did not fix the interest-rate gap.
Now the focus has moved decisively to the BoJ.
A September Hike May Still Not Be Enough
Rabobank sees two persistent drags on the Yen.
“In our view, there are two main factors that have been weighing on the JPY since the tail end of last year.”
The first is the widening divergence between USD/JPY and two-year yield spreads following Sanae Takaichi’s rise to the LDP leadership.
The second is the perception that fiscal policy and political preferences have constrained the BoJ.
“The PM’s reputation as a fiscal dove combined with her previously spoken preference for low interest rates has undermined the JPY and sparked speculation that the government has been leaning on the BoJ not to raise rates.”
“For sure, the BoJ has been slow to raise rates and for the JPY to stabilise, the BoJ will almost certainty have to hasten the pace of policy tightening.”
Reuters reported Tuesday that USD/JPY was still around 160.08 despite the increasingly hawkish September narrative, with traders focused on the continuing US-Japan yield gap.
That stubbornness says quite a lot.
Even a 25-basis-point hike may only buy Tokyo time unless Ueda signals that additional tightening will follow.
“The absence of a hawkish stance from the BoJ at the September 18 policy meeting would almost certainly weigh heavily on the JPY.”
“Even with a rate hike this month, the JPY is unlikely to be out of the woods.”
Fiscal policy remains the other loose end, with markets increasingly sensitive to JGB supply and the 2027 budget discussions.
We made the same distinction in our earlier Yen analysis: getting the rate to 1.25% is one thing; convincing markets that Japan has entered a durable tightening cycle is another.
At 160, the pair is basically daring the BoJ to prove it.
Rabobank thinks the combination of intervention risk and September tightening can eventually pull USD/JPY back into 157-158.
The next move, though, probably depends less on whether the BoJ hikes than on whether Ueda can convince investors there is another hike behind it.
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