Don't count chickens until they are hatched. The market spent the month confident it knew the yen's fate, pushing USD/JPY toward the 160 mark. But the first hints ahead of the Bank of Japan's September meeting that a more aggressive rate hike might be coming cracked that confidence. The currency recouped nearly all of August's losses in just two days, and traders rushed to cover shorts, fearing both monetary tightening and a return of official interventions.

GPIF portfolio dynamics and structure

The shift in sentiment coincided with an unexpected development: the steering committee of the world's largest pension fund, GPIF, with $2 trillion in assets, convened an unscheduled summer meeting for the first time in seven years. Formally, the agenda concerned asset allocation, though the committee had decided in March that no review was required. The market immediately suspected the fund might increase the target share of domestic bonds in its £318 trillion portfolio. Prime Minister Sanae Takaichi and Finance Minister Satsuki Katayama have long urged pension capital to return home.

The yen also got a more direct reason for optimism. Bank of Japan board member Hajime Takata said a 25?basis?point hike is "not set in stone" and did not rule out a larger step. Yen buying could have been reinforced by speculation of an outsized increase, Mizuho Bank notes. The futures market is now fully pricing a September rate hike and is pushing expectations toward a continuation of the cycle in December.

But there is a much less subtle voice behind the BOJ. US Treasury Secretary Scott Bessent has stepped up public pressure on Tokyo, demanding more decisive action. Washington's barely disguised appeals have turned the September meeting into a high?stakes game: any hesitation by the central bank would not merely surprise the market — it would send the yen tumbling.

JP Morgan Securities says that after Washington has said so much, it would be hard for the BOJ not to respond. Still, if the central bank appears unable to raise rates without external tailwinds, the effectiveness of its policy itself will be called into question.

USD/JPY movement and currency interventions

The price of such dependence is already known. Over the past month, Japan spent a record $96.4 billion defending the currency, and US support only underscored the warning to speculators betting against the yen. Manulife Investment Management says the market received a signal that authorities want a stronger yen.

Yet the force of outside pressure is a poor substitute for domestic resolve. Will the Bank of Japan be able to act on its own on Sept. 18, or will it again need a nudge from abroad?

Technically, on the daily chart, USD/JPY has returned to August's low with the risk of a renewed correction toward the long-term uptrend. While the dollar trades below £156.6, the bias is to sell.