USD/JPY stayed under pressure on Wednesday but selling traction was limited as the US Dollar rebounded after a US Treasury buyback update. The pair traded near 153.50, having briefly slipped below 153.00 to its lowest level since February. The Treasury said it could repurchase up to $6bn of longer-dated debt on Thursday, above the previously indicated minimum of $4bn per operation, and US yields rose in response, with the 10-year Treasury yield around 4.85%, the highest since November 2023. The US Dollar Index (DXY) was near 98.80 after recovering from 98.60, its lowest since 21 August.
The Japanese Yen continued to draw support from expectations of faster Bank of Japan (BoJ) tightening, with a rate hike fully priced for the 17–18 September meeting, encouraging the unwind of yen-funded carry trades and repatriation flows. Attention now shifts to Thursday’s US Producer Price Index (PPI) and Friday’s Consumer Price Index (CPI) ahead of the Federal Reserve’s (Fed) 15–16 September meeting; CME FedWatch shows markets pricing about a 60% chance of a 25bp hike. Technically, the report flagged support around 153, a 2026 low near 152, and resistance at 155.
Derivative Trading Recommendations Amid Policy Shifts
We recommend that derivative traders position for continued downside in the USD/JPY pair by purchasing near-the-money put options. The unwinding of Yen-funded carry trades is gaining momentum as the Bank of Japan prepares for a highly anticipated rate hike on September 17-18. With Japan’s core inflation averaging around 2.5% to 2.8% this year, the macroeconomic pressure heavily favors a stronger Yen.
While the US Treasury’s massive $6 billion bond buyback has temporarily pushed the 10-year yield to 4.85%, we view this USD recovery as a short-term selling opportunity. The US Dollar Index has struggled to sustain gains above 98.80, indicating that the Greenback’s upward momentum is losing steam. Traders can exploit this temporary bounce by establishing short positions in USD/JPY futures as the price approaches the heavy resistance level at 155.00.
Volatility Strategies Ahead of Key Inflation Data
We advise employing volatility-buying strategies, such as long straddles, ahead of this week’s US PPI and CPI data releases. These inflation reports will heavily influence the Federal Reserve’s rate decision on September 15-16, where markets currently price in a 60% chance of a rate hike. If the inflation numbers come in softer than expected, we anticipate a sharp break below the key psychological support level of 153.00.
If USD/JPY breaches the 153.00 floor, we expect a rapid slide toward the 2026 low near 152.00. Hedging existing long-dollar exposures is crucial right now because the market has shifted from temporary intervention-driven support to sustained, policy-driven Yen gains. Derivative portfolios should remain highly flexible to navigate the sharp, multi-directional swings expected over the next two weeks.
