The yen ripped through 155 on Thursday, capping a two-day surge that has traders rethinking every position that relied on cheap Japanese funding. The currency reached a one-month intraday high against the dollar, jumping more than 2% against the greenback at one point touching 155.25 per dollar. The catalyst was not intervention, even though Japan’s top currency diplomat Atsushi Mimura kept that card on the table. It was BOJ Governor Ueda’s comment cementing the high likelihood of a BOJ rate hike in September.
The September 17-18 meeting is now fully live. Investors are fully pricing in an interest rate hike at the BOJ’s September 17-18 meeting. Governor Ueda set the table at the G20 in Asheville: “from the perspective of conducting policy with a risk-management approach as the underlying inflation rate approaches 2%, we have come to believe that we need to pay greater attention than before to upside risks in our policy conduct,” he told reporters. Then board member Hajime Takata raised the stakes further. Takata said the BOJ should adopt a more flexible approach to future rate hikes and argued that 2026 marks a structural change in the economic regime. BBH flagged the bluntest scenario: Takata left the door open for a 50 or 75 basis point hike on September 18 and back-to-back rate hikes.
Reuters has reported the BOJ is set to raise the rate as soon as at its two-day policy meeting on September 17-18, and is considering hiking more aggressively thereafter than the current pace of roughly two times a year. That acceleration is what makes this moment structurally different from the BOJ’s earlier, tentative moves. The BOJ raised interest rates to a 31-year high of 1% in June on the view Japan was on the cusp of durably hitting its 2% inflation target. The question now is how far and how fast they go from here.
The JGB market is already answering. Japan’s 10-year JGB yield reached 3.00% on September 1, its highest level since September 1996, as investors demanded higher returns amid inflation, fiscal concerns, and expectations for further BOJ tightening. Japan’s government assumed a 3% long-term rate when it calculated debt-servicing costs in its 2026 budget, meaning the most indebted government in the developed world is now more expensive to fund than it planned for. The yield pulled back slightly after a strong auction, but the direction is clear.
This is where the U.S. Treasury market gets pulled in. Japan holds about $1.12 trillion in U.S. Treasuries, making it the largest foreign creditor of the U.S. government; for decades, near-zero domestic interest rates pushed Japanese savings abroad, creating a large, stable, long-duration investor base that helped anchor long-term yields well beyond Japan’s borders. That dynamic is reversing. For the first time in decades, domestic investors can now earn yields around 3% in the 10-year JGB, and Japan’s holdings of U.S. Treasuries have already been falling this year. A BOJ hike, especially a larger-than-expected one, accelerates that repatriation math and adds upward pressure on U.S. yields at the exact moment the Fed meets two days earlier on September 15-16.
The ETF Trade: DXJ vs. EWJ
For traders in Japanese equities, the currency reversal splits the field cleanly. DXJ tracks an exporter-focused, dividend-weighted index of Japanese stocks and is hedged for currency fluctuations between the USD and JPY. That structure worked beautifully when the yen was weakening. But the hedge is a two-way commitment. If the yen strengthens, DXJ will tend to underperform EWJ, a risk that materialized in August 2024 when an unexpected BOJ rate hike triggered yen appreciation and investors pulled more than $400 million from DXJ in a single week.
EWJ, which holds unhedged yen exposure, is the direct beneficiary when the yen strengthens. Holders of unhedged Japanese equity positions who have been sitting on currency drag all year now have the currency working in their favor, provided Japanese equities can hold up against a tightening BOJ. That is not guaranteed: exporter earnings face a headwind when the yen rises, particularly in the industrials and auto names that dominate DXJ’s portfolio.
The Fed meets September 15-16. The BOJ decides September 17-18. Two days apart, two central banks potentially moving in opposite directions. Watch USD/JPY through 154 as a signal that markets are pricing something larger than 25 basis points from Ueda. If that level cracks before the decision, the Treasury selloff and the DXJ-to-EWJ rotation could accelerate together.
