Last Friday (September 4), the US August non-farm payroll data surprisingly came in strong—an increase of 162,000, far exceeding market expectations—presenting a typical 'USD-friendly' data report. However, the USD/JPY forex market didn't take the bait that night: the USD/JPY exchange rate not only failed to rebound alongside rising US Treasury yields but instead continued its depreciation trend seen this week, briefly breaking below the 155 level. The yen has appreciated about 2.5% cumulatively this week, marking the largest weekly gain since the joint US-Japan intervention in late July. On the surface, this exchange rate volatility is driven by the Bank of Japan's rare series of hawkish statements and continued market speculation about a renewed 'understanding' on USD/JPY policy between the US and Japan. More importantly, this story, which appears confined to the Tokyo forex market, is actually transmitting step-by-step across the Pacific to influence the pricing logic of US AI and tech growth stocks over the past week, through a chain involving yen funding costs, unwinding of global carry trades, and tightening liquidity.
I. Why Can the USD/JPY Exchange Rate Affect the Global Capital Markets' Nerve?
The USD/JPY exchange rate indicates how many yen one US dollar can buy. A larger number represents a cheaper yen (depreciation); a smaller number represents a more 'expensive' yen (appreciation). The drop in USD/JPY from around 160 to around 155 this week is a direct manifestation of yen appreciation.
This exchange rate has garnered continuous attention from global investors not just due to Japan's economic size, but because the yen plays the special role of a 'global funding currency' in the global financial system. For nearly thirty years, the Bank of Japan has maintained near-zero or even negative interest rates. Global financial institutions have become accustomed to borrowing yen at extremely low costs, converting it into US dollars or other higher-yielding currencies, and then investing in US stocks, US bonds, and emerging market assets to earn the double benefit of interest rate differentials and asset appreciation—the so-called 'yen carry trade'. Therefore, the USD/JPY exchange rate is also seen as a 'barometer' for global risk appetite and liquidity tightness: as long as the yen maintains low interest rates and a stable, depreciating exchange rate, the carry trade can continuously provide low-cost funds to global risk assets, especially US tech growth stocks.
II. Market Review: A Roller Coaster Week for the Yen, More Intense Than Last Month's Joint Intervention?
Last week (September 1-4), USD/JPY traced a clear downward curve: starting the week by surging to 160.39, its highest point since the late July joint US-Japan intervention; then, it took a sharp downturn against the backdrop of successive Bank of Japan officials signaling interest rate hikes, with a single-day drop of nearly 2% on September 3, the largest since the joint intervention; by last Friday, even with the strong US non-farm payroll data that evening, USD/JPY still failed to reclaim the 156 level. Looking back at the joint forex market intervention by the US and Japan on July 31: on the intervention day, USD/JPY quickly retreated from around 163.99 to around 155.23, a cumulative decline of about 5%; the intervention's effects lasted less than a month, with the yen depreciating again in late August, briefly approaching 160.
Extending the timeline, the last time the yen experienced volatility comparable in intensity to this round was in August 2024, triggered by the Bank of Japan's unexpected interest rate hike, which led to the unwinding of global carry trades and a nearly 20% plunge in the Nikkei 225 over three days. While this round of yen appreciation has not yet escalated into the asset sell-off seen in 2024, whether measured by absolute gains, triggering logic, or the market's alertness to 'whether officials will intervene again,' it has reached a critical point that warrants serious attention.
III. Why Did the Yen Surge? A Triple Resonance of 'Central Bank Hawkish Shift + Narrowing Yield Spreads + Short Covering'
This sharp yen appreciation was not driven by a single factor but rather the simultaneous tightening of three threads.
Thread One: The Bank of Japan's intensive hawkish turn. On September 2, Governor Ueda Kazuo stated that the September 17-18 policy meeting would assess upside price risks and noted that 'financial conditions remain accommodative, and we want to continue raising interest rates'; Board Member Takata Hajime recently turned even more hawkish, stating he would 'flexibly proceed with rate hikes,' not ruling out consecutive hikes, which Citigroup rated as his 'strongest signal.' As a result, the OIS-implied probability of a September rate hike surged to 94%-99%, and the market has essentially priced in a 25 basis point hike on September 18, bringing the policy rate to 1.25%—the shortest interval between hikes under Governor Ueda's tenure (only about 3 months since June).
Thread Two: Rising Japanese government bond (JGB) yields, compressing US-Japan yield spreads. On September 1, Japan's 10-year JGB yield broke through 3%, hitting a new high since 1996; coupled with the Takaichi government's 'proactive fiscal policy'—record-high budget for the 2027 fiscal year and increased investment in semiconductors and AI—this increased issuance pressure at the long end and the yield curve center. Rising yields and rate hike expectations resonated, directly compressing US-Japan yield differentials and weakening the 'cost-effectiveness' of the funding side of yen carry trades.
Thread Three: Concentrated covering of yen short positions. CFTC data shows that as of August 25, leveraged funds' net yen short positions still reached 81.6k contracts, with asset managers holding 18.3k contracts; shorting the yen remained one of the world's most crowded trades. After the reversal in rate hike expectations and yields, the cost of holding short positions surged sharply, and stop-loss covering formed a self-reinforcing cycle—this also explains why, despite the blowout non-farm payroll data on September 4 (theoretically positive for the USD) and the Fed's September rate hike probability rebounding from around 50% to 58.6%, the yen still showed resilience and even strengthened: the intensity of the rate repricing was far from sufficient to reverse the more dramatic repricing happening on the yen side.
IV. From the 'Takaichi Trade' to Intervention Dependency: The Deep-Seated Script Behind the Yen's Repeated Surges and Plunges This Year
The script for this round of the yen's roller-coaster ride perhaps began being written with the fiscal risk implications following Takaichi Sanae's rise to power.
For a long time, US influence on Japan dominated the yen exchange rate: USD/JPY and the US-Japan 10-year government bond yield spread were almost inseparable twin curves, with the widening/narrowing of the yield spread highly correlated to yen depreciation/appreciation. Recently, however, while the US-Japan yield spread has narrowed, the yen has not strengthened in sync. Conversely, Japan's 10-year to 2-year government bond yield spread has continued to widen, reflecting increasing market anxiety over fiscal risk premiums: this both depresses the short end, narrowing the yield spread, and directly erodes confidence in the yen, leading to the simultaneous occurrence of 'yield spread narrowing' and 'yen depreciation.'
Takaichi Sanae's proactive fiscal policy manifested as the 'Takaichi trade.' Since taking office, Takaichi has implemented a series of 'responsible proactive fiscal' measures: large-scale bond issuance, tax cuts, and increased investment in strategic industries—the largest stimulus package since the pandemic. Japan's government debt has rapidly become the highest in the world, at about 263% of GDP, far exceeding Greece's 142% during its debt crisis. Wall Street and the market collectively worry about further widening deficits, leading to the recent hotly debated 'Takaichi trade': selling JGBs (betting fiscal expansion increases supply and inflation), shorting the yen (doubting fiscal sustainability), and favoring Japanese stocks (weak yen and stimulus benefiting corporate profits, with the Nikkei 225 once breaking through 50,000 points).
Official data reveals the true rhythm of 'rising then falling, falling then rising.' Japan's Ministry of Finance data shows interventions of approximately 11.73 trillion yen from April 28 to May 27 and another 15.40 trillion yen from July 30 to August 26, totaling about 27.13 trillion yen, already exceeding the sum of interventions in 2022 and 2024 (about 24.5 trillion yen)—whenever USD/JPY approached 160, officials almost invariably stepped in. This is also key to the previous cycles of 'rebounding then giving up gains': support came more from official buying than fundamental improvement, and once the buying subsided, the market reverted to the long-term pressures of fiscal risk and carry trades.
V. Where Does the 'US-Japan Understanding' Come From? A Joint Intervention Unseen in 15 Years
In late July this year, the US Treasury Department and Japan's Ministry of Finance simultaneously confirmed joint forex market intervention: Japan's Ministry of Finance officially confirmed coordinated yen buying on August 3 and planned to use the FIMA repo facility in the future. On the intervention day, USD/JPY quickly retreated from around 163.99 to around 155.23, rebounding nearly 4% within a week, marking the largest single-week gain in about two years; Trump called the move 'a sign of friendship and also good for the world economy.'
Recent moves: The triple signal from Besant. Entering September, public statements from US Treasury Secretary Besant have been repeatedly interpreted by the market as further evidence of 'pressuring the Bank of Japan to raise rates': On September 1, the US Treasury Department issued a statement saying Besant met with Bank of Japan Governor Ueda Kazuo, calling for 'sound monetary policy to avoid excessive exchange rate volatility' and 'strongly supports Japan's decisive market and monetary steps to address the yen's substantial undervaluation,' bluntly stating 'yen weakness exacerbates Japan's domestic inflationary pressures'; subsequently, in a CNBC interview, Besant said, 'I have information the market doesn't have,' hinting at considerable certainty about the Bank of Japan's upcoming actions; simultaneously, he publicly warned that disorderly volatility in the yen market could trigger forced unwinding of carry trades, impacting global markets, and ultimately raising borrowing costs for US households and businesses.
VI. Dissecting the Transmission Chain: How Yen Appreciation Step-by-Step Affects US AI and Tech Stocks
For US stock investors across the Pacific, yen exchange rate fluctuations may seem distant. However, historical experience shows their impact on US stocks, particularly long-duration, high-valuation AI and tech growth stocks, is often more direct and severe than imagined.
Historical reference: The 'Black Monday' of August 2024. In July 2024, the Bank of Japan unexpectedly raised interest rates by 0.15 percentage points, directly triggering a global unwinding of yen carry trades: in the week of August 5, the Nikkei 225 plunged nearly 20% over three trading days, with a single-day drop as high as 12.4%, its largest since the 1987 'Black Monday'; Korean stocks also plummeted over 10%; US night trading was not spared either, with Nvidia plunging 14% at one point, Apple tumbling 10% due to Buffett's significant reduction in related holdings, the Nasdaq 100 index falling 5%, and Bitcoin simultaneously crashing 15%. According to JPMorgan's subsequent estimates, that round of unwinding ultimately cleared less than 60% of speculative positions, meaning risks were not fully purged.
Transmission mechanism: The four-step chain from Tokyo to Silicon Valley. If the Bank of Japan hikes rates and JGB yields rise, further compressing US-Japan yield spreads, yen funding costs increase, forcing funds that borrowed yen to finance holdings of US stocks or bonds to unwind positions—selling overseas assets and buying back yen to repay debts. Since such funds have long favored high-valuation, long-duration growth assets (whose pricing is most sensitive to risk-free rates and liquidity), AI and tech leaders in the US stock market are often the first to bear the brunt, becoming the hardest hit by sell-offs. Furthermore, when Japanese domestic long-term funds like life insurers, banks, and pension funds see domestic 10-year JGB yields returning to 3%, they will marginally reduce allocations to overseas assets (especially US Treasuries) or even repatriate some funds, thereby creating additional upward pressure on long-end US Treasury yields. This further raises the discount rate for US growth stocks, forming a combined effect with carry trade unwinding.
Current exposure: This time's 'stock' is larger than in 2024. Multiple data sources indicate that the potential scale of carry trades in this round exceeds the 2024 peak: Japanese residents' outstanding loans to overseas borrowers have surpassed the 2024 peak; the scale of loans from non-Japanese banks in Tokyo to their headquarters has reached its highest level since the global financial crisis; and as of August 25, CFTC data shows yen net short positions remain elevated, having not undergone substantial unwinding. This means that if the policy path signals released by the Bank of Japan after September 18 are stronger than market expectations, it could trigger a larger-scale unwinding than in 2024.
VII. Outlook for September 18: A 25 Basis Point Hike is Just the Starting Point; the Real Variable is the 'Path'
Although Japanese officials generally lean towards a 'conventional, lower communication cost' 25 basis point hike rather than a one-time large increase. What will truly determine how far this round of yen appreciation—and even the global asset repricing—goes is not the 25 basis points itself, but the policy path after the hike—whether it continues step-by-step or, as hinted by Takata Hajime, opens the possibility of 'consecutive hikes' or even larger increases. After September 18, the yen story will no longer be just a story of Japan's domestic monetary policy but a systemic event driving the global repricing of funds. Whether its spillover effects will be a gentle release, an accelerating shock, or have already been front-loaded still requires further verification from next week's CPI data, the Bank of Japan's meeting minutes, and the latest CFTC positioning data.
Several key signals worth monitoring going forward: First, whether the US-Japan 10-year yield spread and USD/JPY resume moving in the same direction—if so, it indicates the traditional carry trade framework has regained dominance. Second, the '2s10s' term spread of JGBs, and the auction demand for 30-year and 40-year JGBs—if long-end yields continue to underperform short-end yields significantly, it suggests fiscal risk premium pressure remains unresolved. Third, the Bank of Japan's subsequent rate hike pace, and changes in real interest rates and inflation expectations—only when the real return on yen assets genuinely improves can the appreciation trend potentially be sustained, rather than relying solely on sentiment and short covering. Fourth, whether the funding sources for Takaichi Sanae's fiscal plan, the net new bond issuance scale, and tax cut scope become clearer—this determines whether the market truly believes in the 'responsible proactive fiscal' narrative. If officials intervene in the market again after September 18, observe the speed of the market giving back gains—if it quickly falls back to pre-intervention levels within days or weeks, it suggests the policy signals themselves are insufficient to reverse fundamental pricing, and the yen will likely continue spinning in the cycle of 'intervention, rebound, giveback.'
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