Diverging monetary policies have boosted the dollar, pushing the USD/JPY exchange rate close to intervention thresholds.
2026-09-18 19:24:09
The US dollar continues to strengthen due to the combined effects of the Federal Reserve's hawkish policy stance, the Bank of England's slower pace of policy tightening, and the Bank of Japan's policy attitude. The USD/JPY exchange rate is approaching a key price level where the risk of potential intervention has increased significantly. Once this level is broken, the probability of the Japanese government taking measures to stabilize the exchange rate will rise sharply. 
The policy decisions of the Bank of Japan and the Bank of England have put significant downward pressure on their respective currencies. Market funds have rekindled their enthusiasm for allocating to dollar-denominated assets, further supporting the dollar's upward trend. After a brief pullback on Thursday, the dollar resumed its upward trajectory, supported by the Federal Reserve's hawkish monetary policy stance. In contrast, other major central banks have so far failed to demonstrate a sufficiently decisive policy stance to match the hawkish tone of the Federal Open Market Committee (FOMC). The Bank of England chose to postpone tightening monetary policy; while the Bank of Japan's latest interest rate hike decision did not receive unanimous support from all members, leading the market to question whether the Bank of Japan will soon initiate another round of rate hikes. This phenomenon is actually quite common during global monetary policy shifts: even though the European Central Bank started its rate hike cycle as early as June and the Reserve Bank of Australia in February, in the initial months of policy changes, the market often prioritizes trading focus on US policy changes. The Federal Reserve initiated this round of rate hikes primarily based on three realities: strong US economic fundamentals, inflation consistently exceeding the 2% policy target, and escalating global geopolitical risks. Bank of England Governor Andrew Bailey stated that, so far, the impact of persistently high global energy costs on domestic prices and wages in the UK has been limited. However, he also warned that over time, inflationary pressures from energy will gradually spread to the UK, at which point the Bank of England will be forced to raise interest rates. The market widely expects a rate hike as early as the November policy meeting. However, the Bank of England's cautious stance disappointed investors bullish on the pound, directly pushing the pound against the dollar to its lowest level since the end of July. The Bank of Japan also failed to provide support for the yen. Of the nine members of its policy committee, two voted against raising the overnight rate from 1% to 1.25%. The market interpreted this vote as sending a clear signal: the Japanese Prime Minister does not want the Bank of Japan to aggressively tighten monetary policy, meaning that the pace of interest rate normalization in Japan will be much slower than previously optimistic market expectations. The dollar surged more than 1.2% against the yen, reaching 157.8, a two-week high. As the exchange rate approaches the 160 mark, the probability of verbal warnings from Japanese authorities increases, and the risk of subsequent actual foreign exchange intervention also rises. US Treasury Secretary Scott Bessant recently introduced a series of measures to attempt intervention in the US Treasury and foreign exchange markets, but these operations have only served a short-term purpose of buying time and cannot fundamentally reverse the overall market trend. During this window of opportunity, the Federal Reserve stabilized the stock and bond markets by reiterating its determination to combat inflation; the Bank of Japan also used this window to complete its interest rate hike. Meanwhile, market funds are once again favoring dollar assets, coupled with the generally conservative and cautious policy stance of other major central banks. All indications suggest that the dollar index still has upward momentum, and it has already broken through the important psychological barrier of 100. The weakening of the yen is a logical market outcome under the current macroeconomic environment; however, traders must remain vigilant: the USD/JPY exchange rate is approaching a widely recognized "warning line." Once this line is crossed, the Japanese government is likely to intervene in the foreign exchange market, at which point the market will likely experience a sharp reversal.
The policy decisions of the Bank of Japan and the Bank of England have put significant downward pressure on their respective currencies. Market funds have rekindled their enthusiasm for allocating to dollar-denominated assets, further supporting the dollar's upward trend. After a brief pullback on Thursday, the dollar resumed its upward trajectory, supported by the Federal Reserve's hawkish monetary policy stance. In contrast, other major central banks have so far failed to demonstrate a sufficiently decisive policy stance to match the hawkish tone of the Federal Open Market Committee (FOMC). The Bank of England chose to postpone tightening monetary policy; while the Bank of Japan's latest interest rate hike decision did not receive unanimous support from all members, leading the market to question whether the Bank of Japan will soon initiate another round of rate hikes. This phenomenon is actually quite common during global monetary policy shifts: even though the European Central Bank started its rate hike cycle as early as June and the Reserve Bank of Australia in February, in the initial months of policy changes, the market often prioritizes trading focus on US policy changes. The Federal Reserve initiated this round of rate hikes primarily based on three realities: strong US economic fundamentals, inflation consistently exceeding the 2% policy target, and escalating global geopolitical risks. Bank of England Governor Andrew Bailey stated that, so far, the impact of persistently high global energy costs on domestic prices and wages in the UK has been limited. However, he also warned that over time, inflationary pressures from energy will gradually spread to the UK, at which point the Bank of England will be forced to raise interest rates. The market widely expects a rate hike as early as the November policy meeting. However, the Bank of England's cautious stance disappointed investors bullish on the pound, directly pushing the pound against the dollar to its lowest level since the end of July. The Bank of Japan also failed to provide support for the yen. Of the nine members of its policy committee, two voted against raising the overnight rate from 1% to 1.25%. The market interpreted this vote as sending a clear signal: the Japanese Prime Minister does not want the Bank of Japan to aggressively tighten monetary policy, meaning that the pace of interest rate normalization in Japan will be much slower than previously optimistic market expectations. The dollar surged more than 1.2% against the yen, reaching 157.8, a two-week high. As the exchange rate approaches the 160 mark, the probability of verbal warnings from Japanese authorities increases, and the risk of subsequent actual foreign exchange intervention also rises. US Treasury Secretary Scott Bessant recently introduced a series of measures to attempt intervention in the US Treasury and foreign exchange markets, but these operations have only served a short-term purpose of buying time and cannot fundamentally reverse the overall market trend. During this window of opportunity, the Federal Reserve stabilized the stock and bond markets by reiterating its determination to combat inflation; the Bank of Japan also used this window to complete its interest rate hike. Meanwhile, market funds are once again favoring dollar assets, coupled with the generally conservative and cautious policy stance of other major central banks. All indications suggest that the dollar index still has upward momentum, and it has already broken through the important psychological barrier of 100. The weakening of the yen is a logical market outcome under the current macroeconomic environment; however, traders must remain vigilant: the USD/JPY exchange rate is approaching a widely recognized "warning line." Once this line is crossed, the Japanese government is likely to intervene in the foreign exchange market, at which point the market will likely experience a sharp reversal.
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