USD/JPY Breaks Below 155 as Markets Shift Away from Carry Trades

USD/JPY broke below 155 for the third time on September 7, marking a significant shift in market sentiment. The pair has been defended by Japanese authorities twice before, but this time it finally gave way.

The break matters more than it seems because markets remember levels, especially those that have been repeatedly defended. When USD/JPY broke below 155, traders were not just reacting to new information, but also unwinding the confidence built around the level.

Several factors contributed to the yen's strength. US Treasury Secretary Scott Bessent has been vocal about Japan's reflation policy, saying it should move away from it and let the yen strengthen. His comments coincided with Japanese ministries submitting a budget request of 143 trillion yen, far above the initial budget for this fiscal year.

The BOJ also hinted at a possible rate hike, with Governor Kazuo Ueda stating that rate hikes would be fully discussed at every meeting, including the next one on September 17-18. This shift in policy could narrow the gap between US and Japanese interest rates, making carry trades less profitable.