The Japanese yen surged to roughly 155.8 per dollar in early September 2026, its strongest reading against the greenback in five months. That’s a remarkable turnaround for a currency that was flirting with 164 per dollar just weeks ago, a level that hadn’t been seen in nearly four decades.
A record-breaking intervention campaign
Japanese authorities spent a staggering ¥15.39 trillion buying yen during July and August 2026, the largest intervention campaign ever recorded. To put that in perspective, that’s roughly $100 billion worth of currency market firepower deployed in just two months.
The yen had been steadily deteriorating throughout the summer, trading in a range of 159 to 164 per dollar for most of the season. The nadir came in July, when the pair touched approximately 164, putting the yen perilously close to a 40-year low against the dollar.
The root cause was familiar: a persistent gap between US and Japanese interest rates. While the Federal Reserve kept rates elevated to combat inflation, the Bank of Japan maintained its comparatively dovish stance. That spread made it a no-brainer for traders to borrow cheap yen and park money in higher-yielding dollar assets, a dynamic known as the carry trade.
By the first week of September, the intervention campaign had clearly gained traction. USD/JPY fell from the low 160s on September 2 to approximately 155.83 by September 7, a move of more than five yen in less than a week.
The policy coalition behind the rally
Finance Minister Satsuki Katayama and top currency official Atsushi Mimura have been vocal about restoring the yen to levels that better reflect economic fundamentals. BOJ Governor Kazuo Ueda has signaled openness to policy adjustments. US Treasury Secretary Scott Bessent has made supportive comments about a stronger yen, suggesting Washington isn’t exactly upset about a weaker dollar against the Japanese currency.
This diplomatic coordination has shifted market expectations considerably. Traders are now pricing in a meaningful probability that the BOJ will hike rates at its September 2026 meeting. Even the prospect of a hike, regardless of whether it materializes, has been enough to unwind some of the speculative short positions that had been weighing on the yen for months.
What a stronger yen means for global markets
A stronger yen typically weighs on Japanese equities, particularly exporters whose overseas earnings shrink when converted back into a more expensive home currency. The Nikkei 225 tends to move inversely with the yen, and investors in Japanese stocks should be bracing for that headwind.
Japanese institutions are among the world’s largest holders of foreign bonds, particularly US Treasuries. A stronger yen reduces the hedging costs for these investors, potentially making foreign bond holdings more attractive. But if the BOJ actually follows through with rate hikes, higher domestic yields could also pull some of that capital back home, adding upward pressure to Treasury yields.
The carry trade unwind is the most immediate concern for broader risk assets. When yen-funded carry trades get liquidated, it often coincides with selling in equities, emerging market currencies, and other risk-sensitive assets. The August 2024 carry trade blowup, which briefly rattled global markets, serves as a recent reminder of how disorderly these unwinds can become.