USD/JPY near 159 is testing Yen bulls as Natixis and MUFG back a September BoJ hike, with Himino and US inflation data next in focus.

The US Dollar to Japanese Yen (USD/JPY) exchange rate ended Friday at 158.98, almost five Yen below July’s peak near 164 but still uncomfortably high for Tokyo after the latest policy response.

The joint US-Japan intervention drove USD/JPY as low as 155.27 at the end of July, yet much of that Yen recovery has since disappeared.

USD/JPY rose 0.89% during August and spent most of last week back around 159, despite a substantial increase in expectations that the Bank of Japan will tighten policy next month.

Natixis and MUFG economists now agree that September should deliver another rate increase, although the stubborn behaviour of the exchange rate makes the harder question obvious: how much BoJ tightening will actually be needed to produce a lasting Yen recovery?

Analysts at Natixis have brought forward its previous October call and now expect a 25-basis-point hike to 1.25% on 18 September.

“The Bank of Japan (BoJ) is set to raise the policy rate by 25-bps on September 18th, as inflation pressure strengthens,” economists Alicia García Herrero and Kohei Iwahara said.

The inflation case has strengthened quickly.

Nationwide headline inflation rose to 1.9% year-on-year in July from 1.6%, while inflation excluding food and energy increased to 1.4% from 1.2%.

Natixis also points to a striking 29.1% annual increase in import prices, with expensive energy and the weak Yen increasingly feeding into domestic costs.

Manufactured-goods inflation accelerated to 3.2%, while general-services inflation edged up to 1.4%.

“These results suggest that the lag in the transmission of import inflation on CPI could be shorter than six to twelve months,” Natixis said, arguing that the developments “justify the BoJ’s concern on upside risk of inflation.”

There is a political element to the forecast as well.

Natixis believes the Japanese government has become more accepting of faster monetary tightening following Washington’s decision to participate in the Yen intervention.

With USD/JPY already back around 159, policymakers have little reason to assume currency intervention on its own has solved the problem.

Natixis argues that the government could conclude “that a bolder BoJ is needed to prop up the Yen back to reasonable levels and, thus, limit the pass through to inflation.”

The bank’s new path extends beyond September, with additional hikes expected in January and July 2027 taking the policy rate to 1.75%.

“All in all, the BoJ is anticipated to hike by 25-bps to 1.25% in September, earlier than our previous call of October,” Natixis said.

Governor Kazuo Ueda had already warned about upside inflation risks at the July meeting, and Natixis believes events have caught up with that warning.

“That risk has materialized with today’s CPI inflation so the hike should happen, all the more so given the renewed Yen weakness,” the bank concluded.

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USD/JPY remains well below the late-July peak near 164, although the recovery from 155.27 has taken the pair back towards 159 and left the Yen struggling to extend its intervention-driven gains.

MUFG’s Derek Halpenny also thinks the latest Japanese inflation figures support action in September.

“The data backs up current market pricing, and our view, that the BoJ will hike rates by 25bps at the next policy meeting in September,” MUFG said.

Market pricing at the end of last week implied roughly an 80% probability of such a move, which means a September hike is rapidly shifting from hawkish surprise towards base case.

That perhaps explains why the Yen has reacted so poorly to the repricing.

“Stronger inflation in Japan has had a limited FX impact with USD/JPY stable,” MUFG noted.

Higher Japanese government bond yields have not produced much more encouragement either, suggesting that investors want evidence of a genuine tightening cycle rather than another isolated 25-basis-point move.

We’ve previously looked at whether intervention has changed the underlying USD/JPY trend; the recovery towards 159 keeps that argument very much open.

USD/JPY Week Ahead: Himino Has a Chance to Strengthen the Message

MUFG sees Deputy Governor Ryozo Himino’s next appearance as an important opportunity for the BoJ to make its September intentions clearer.

“There has been limited opportunities for guidance from the BoJ of late but next Friday Deputy Governor Himino is scheduled to speak and that could be an opportunity for cementing expectations of further action in September,” the bank said.

The latest Bank of Japan release schedule now lists Himino’s speech to local leaders in Saitama for Thursday 27 August at 10:30 JST.

Japan’s calendar also includes the BoJ’s core CPI indicators on Tuesday and the July Services Producer Price Index on Wednesday, giving markets more inflation evidence to digest before Himino speaks.

The Dollar side will be busy at almost exactly the same time.

The US Bureau of Economic Analysis release schedule has July Personal Income and Outlays, including PCE inflation, and the second estimate of Q2 GDP both due on Wednesday 26 August.

Fed Chair Kevin Warsh then makes his first Jackson Hole appearance as chair as the symposium runs from 27-29 August, with investors looking for a clearer steer on whether the Fed still sees another rate increase as necessary.

A softer PCE reading combined with firm guidance from Himino would give Yen bulls the cleaner setup: less support from US yields at the same time as the BoJ establishes a more credible tightening path.

Stronger US inflation or a hawkish Warsh message would make the arithmetic much less favourable, particularly if Himino merely confirms what markets already price rather than signalling that further moves are likely.

Natixis and MUFG increasingly agree on September, so the next phase of the USD/JPY trade is no longer primarily about whether the BoJ hikes.

It is about whether Tokyo can persuade the market that 1.25% is the beginning of a more meaningful tightening cycle rather than another small step while the rate gap with the United States remains wide.

Near 159, the Yen is still waiting to be convinced.