Last week, the U.S. Labor Department reported that non-farm payrolls increased by 162,000 in August, exceeding market expectations by more than three times. However, the yen-dollar exchange rate only rose by about 1 yen following the announcement. Typically, strong employment figures lead to expectations of U.S. interest rate hikes, resulting in a stronger dollar and a weaker yen. As the exchange rate's recovery from a sharp decline of over 5 yen from September 2 to 4 has been limited, some analysts suggest that the prolonged 'ultra-weak yen' phase may be at a turning point.
On September 4, the U.S. Labor Department announced that non-farm employment rose by 162,000 from the previous month, significantly surpassing Dow Jones' forecast of 53,000. Additionally, the July figures, which had shown a decline, were revised upward. Based on movements in the U.S. short-term interest rate futures market, the CME FedWatch tool calculated the probability of a rate hike in September to be nearly 60%, up from about 50% the previous day.
However, the exchange rate only moved from the low 155 yen range to the 156 yen range after the announcement. On the morning of September 7, the Tokyo foreign exchange market saw the dollar drop to as low as 155.80 yen, fluctuating in the high 155 yen range. The Nihon Keizai Shimbun reported that the limited rise in the yen-dollar exchange rate, despite stronger-than-expected employment figures, indicates a shift in market perception regarding the difficulty of profiting from selling yen.
The yen-dollar exchange rate fell from the low 160 yen range per dollar on September 2 to the low 155 yen range by September 4. Following U.S. Treasury Secretary Scott Vessen's call for correction of the yen's undervaluation on August 30, Bank of Japan (BOJ) Governor Kazuo Ueda and committee member Hajime Takata made comments favoring interest rate hikes. As expectations grew that the BOJ would accelerate its rate hike pace, investors rushed to unwind their yen short positions. According to the Commodity Futures Trading Commission (CFTC), hedge funds held a net short position in yen of 102,188 contracts (approximately 1.2 trillion yen) just before the sharp decline, a 33% increase from the previous week. The Nihon Keizai Shimbun noted that large short positions in yen remain, making it likely that unwinding these positions could lead to a chain reaction of yen buying and dollar selling.
Market attention is focused on whether this sharp decline is merely a temporary position unwinding or a trend reversal. Following the release of the U.S. employment figures, the trend reversal appears to be gaining traction. Hirofumi Suzuki, chief foreign exchange strategist at Mitsui Sumitomo Bank, stated, "Despite solid U.S. employment data, there is strong buying pressure anticipating yen appreciation."
The next key indicator is the U.S. Consumer Price Index (CPI) for August, set to be released on September 11. Akira Moroga, chief market strategist at Aozora Bank, believes that if the CPI comes in lower than expected and the Federal Reserve decides to maintain its policy rate during the Federal Open Market Committee (FOMC) meeting until September 16, the yen-dollar exchange rate could drop to around 152 yen. Conversely, if the CPI is high but the rise in the yen-dollar exchange rate remains limited, there may be a broader reassessment of investment strategies betting on yen depreciation.
However, some analysts caution that further declines in the exchange rate may not be easy. The U.S. Central Command announced on September 5 that it had attacked three Iranian oil tankers. As tensions in the Middle East rise, West Texas Intermediate (WTI) crude oil futures prices increased to around $92 per barrel on September 7. Expectations of a growing trade deficit for Japan, which relies heavily on energy imports, are contributing factors for yen selling and dollar buying.
Currently, the market is closely watching the 155 yen level. The exchange rate has not fallen below 155 yen even after the Japanese government's yen-buying interventions in April and May and the joint U.S.-Japan intervention at the end of July. Keiichi Iguchi, chief strategist at Resona Holdings, predicts, "The point at which the rate falls below 155 yen will come soon." Moroga added that if U.S. CPI slows and rate hike expectations diminish, while the Japanese government more clearly supports the BOJ's rate hike stance, the rate could drop to 150 yen. Therefore, whether the trend of a weak yen that has raised the yen-dollar exchange rate by about 60 yen over the past five years will change is expected to be determined at the 155 yen level.
* This article has been translated by AI.
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