Original source: Stephen Innes
Compiled by Sudi Xia @ Odaily Planet Daily
The third time often proves true, and in the foreign exchange market, this occurs more frequently than people realize.
- The third test is not necessarily easier to break simply because it is the third. What makes this level significant is the successful defense during the first two tests. The change lies in what has begun to accumulate around it: more traders recognize this line, more positions are built against it, more stop-losses cluster behind it, and more breakout traders wait on the other side.
- This isn’t a statistical pattern, but since I began trading USD/JPY at a Japanese bank, this idea has stayed with me. At the time, the head trader was so superstitious about round numbers and repeated tests that I gave him the nickname “Tokyo Round Number Seer.” He believed that the third solid test was often the decisive one; and once a key USD/JPY level was finally broken, the market rarely reversed until the underlying momentum itself began to fade. The Dark Side of the Boom.
The USD/JPY finally broke below 155 on September 7, after having successfully held near this level twice following interventions during Golden Week and again at the end of July. By early trading on September 8, the pair had fallen below 154.50; and once the market broke above approximately 155.50—the level marking the lows after the two intervention events—another yen barrier quickly vanished.
This is precisely why this breakdown is more significant than surface-level fluctuations.
Markets remember key levels, especially those that have been defended multiple times. The first test can be dismissed as noise, belief begins to form on the second, and by the third, the market often has accumulated substantial positions around the idea that “the bottom will hold again.” When it finally breaks, the move can accelerate, as traders are not just reacting to new information—they are also unwinding the confidence built around that level.
This appears to be what happened.
The immediate catalyst for this recent sharp decline remains difficult to pinpoint precisely, but the macro narrative surrounding the yen has clearly shifted since mid-last week, with multiple forces now aligning in the same direction.
The first is Washington.
U.S. Treasury Secretary Scott Bessent has become increasingly forceful in his comments on Japan’s fiscal and monetary policies. He has advocated, both before and after the G20, that Japan should move away from its reflationary stance and expressed his belief that the Japanese government and the BOJ will take steps to ultimately strengthen the yen.
The timing is notable, as Japanese government agencies have just submitted total FY27 budget requests of approximately ¥143 trillion, significantly higher than the initial budget of about ¥122 trillion for this fiscal year, further reinforcing the impression that Japan’s fiscal backdrop remains highly expansionary. Bessent’s comments may simply coincide with the release of these figures, but in markets, timing is often as important as intent.
Overseas investors are hearing a straightforward message: Washington wants the yen to strengthen, and Tokyo may have less room than before to ignore this preference.
This view was further reinforced by reports that Bessent had expressed dissatisfaction with Japan’s economic policies during his May visit, and that the coordinated intervention at the end of July was widely perceived as being conducted with U.S. cooperation. Whether every detail of this story is accurate is almost secondary; what matters is that it provided global investors with a political framework to anticipate Japan’s shift away from its long-standing reflationary policy mix—the very combination that has historically kept the yen suppressed.
The second factor is the BOJ itself.
Bessent met with Governor Kazuo Ueda on the sidelines of the G20, after which the U.S. Treasury emphasized the importance of monetary policy communication, inflation expectations, and avoiding excessive exchange rate volatility. Ueda subsequently stated that interest rate hikes would be thoroughly discussed at every meeting, including the next one, keeping the September 17–18 meeting firmly within the realm of possible rate increases.
BOJ policy board member Hajime Takata further pushed this shift, arguing that the central bank should be prepared to raise rates flexibly rather than be constrained by the pace already anticipated by markets. He later downplayed the likelihood of a major move at the next meeting, but by then, markets had already absorbed the most important part of the message: the BOJ may be willing to act faster than investors had previously assumed.
This is important because the long USD/JPY trades throughout most of the summer were built on a very comfortable foundation: U.S. interest rates remained high, Japanese interest rates stayed low, carry trades generated returns, and any yen rebound was unlikely to last.
Today, this policy gap may be narrowing from both ends.
The third leg of the story has lower certainty but potentially much greater impact.
Speculation is resurfacing about potential changes in the asset allocation of the Government Pension Investment Fund (GPIF). With approximately 300 trillion yen under management, even a modest shift toward domestic financial assets could have a significant impact on Japan’s markets and the yen.
The issue came to light in July, when Finance Minister Satsuki Katayama stated that the government wished to explore ways to encourage GPIF and other pension funds to increase their investments in Japanese financial assets. Market interest intensified again after the GPIF board met on August 21, and later agenda items revealed discussions around the Basic Portfolio Review Project Team.
It is reported that this is the first time in about seven years that a council meeting has been held in August, a fact that only adds more speculation to the market.
At this moment, no one knows whether meaningful configuration adjustments will actually take place. Details of the discussion may not be disclosed for months. But markets do not always wait for certainty, especially when the relevant institutions manage 300 trillion yen.
The mere possibility of capital flowing back to Japan is enough to have an impact.
And at the time it appeared, the U.S. dollar's strength in USD/JPY began to seem less convincing.
The August jobs report came in strong, with non-farm payrolls increasing by 162,000, enough to restore some expectations of another Fed rate hike. However, the dollar’s response was surprisingly muted, which in itself is a useful signal. Such a robust non-farm data print would typically be expected to push the dollar significantly higher, especially given that markets were already discussing a September rate hike.
In contrast, the U.S. dollar has struggled to gain momentum.
Part of the reason is that Federal Reserve officials, including Christopher Waller, have clearly stated they want to see the September 11 CPI data before making a final decision. Year-over-year wage growth also slowed to 3.1%, continuing a gradual downward trend and reducing the urgency of the argument that the labor market is generating new inflationary pressures.
Therefore, the non-farm data strengthened the case for a rate hike, but did not seal the deal.
The CPI still holds the decisive vote.
President Trump has also been exerting strong pressure in the opposite direction, calling for rate cuts and threatening to take illogical Trump-style actions if the Fed refuses to lower rates. Based on current data, a rate cut at next week’s meeting would be extremely difficult to justify, but the political message is clear enough: the White House does not want another round of tightening.
This helped dampen the dollar; meanwhile, Japan-specific factors began to support the yen, which is why this move felt different from previous rallies driven by intervention.
Pressure is now coming from both sides of the currency pair: Japan is becoming more hawkish, or at least perceived as such by the market, while the dollar is losing support from one of its previous strongest arguments.
From a technical perspective, breaking below 155 is significant, as USD/JPY has also fallen below the 38.2% retracement level of the rally that began at the April 2025 low above 139.50 and peaked just below 164 in July 2026. This brings the January low below 152.50 and the 50% retracement zone above 151.50 into focus.
If long positions in USD/JPY built around the old arbitrage mechanism continue to be liquidated, the currency pair may still have room to decline.
Unless USD/JPY quickly rebounds above 155, the market may begin to view the old support as new resistance. That would be a meaningful shift, but it still wouldn't automatically equate to a full trend reversal.
Many factors driving recent yen movements are based on expectations that have not yet been fully tested: faster BOJ action, reduced Japanese policy inflation bias, potential capital repatriation by GPIF, Washington’s preference for a stronger yen, and no substantive shift by the Fed toward a more hawkish stance.
So, the third attempt finally broke below 155, which is significant.
But the bigger question is: Has the market simply kicked open a stubborn technical door, or is Japan truly beginning to change the policy framework on the other side? In the foreign exchange market, these are two entirely different trades.