After a brief respite, the yen resumed its offensive. The USD/JPY pair touched a six-month low, falling toward the base of the 154 area, in response to hawkish signals about possible further Bank of Japan moves. The market increasingly prices in a rate hike by the Japanese central bank as early as the September meeting (which takes place next week), noticeably shifting the balance in the pair.

One of the strongest catalysts for the current USD/JPY move was a change in rhetoric from Japanese officials and government-aligned experts. For example, Takuji Aida, who serves as economic advisor to Prime Minister Sanae Takaichi, unexpectedly hardened his rhetoric and revised his forecast for the next round of rate hikes — moving it from January 2027 to this September. Moreover, after the September step, he expects another rate increase "by January," i.e., during the following three BOJ meetings. After this "sprint," the central bank would, in his view, return to a more cautious tightening pace.

This is notable because Aida has been one of the most consistent opponents of premature monetary tightening. Therefore, his forecast change should be seen not simply as another hawkish comment from an expert, but as evidence of a gradual shift in consensus within Japanese economic circles.

Additional support for the yen also came from the BOJ's own rhetoric. In particular, BOJ Governor Kazuo Ueda said that raising the rate would be discussed at the September meeting "given strengthening inflationary risks." Earlier, board member Hajime Takata called for a "more flexible" approach to rate increases rather than sticking to specific timetables.

Such verbal signals arrived against a backdrop of rising inflation metrics. At the end of August, it became known that Tokyo core CPI accelerated to 1.8% year-on-year (from 1.7% a month earlier), beating consensus. Overall, Tokyo CPI rose to 1.9% in August (up from 1.8% in July). This measure leads national inflation and serves as a forward indicator for Japan; sustained price growth in the capital points to inflation approaching the BOJ's 2.0% target.

As a result, the market has almost fully priced in a 25 bp rate hike in September. Speculation about a potentially more aggressive step provided additional support to the yen (though such a scenario remains unlikely).

Finally, the threat of currency intervention remains a factor pushing USD/JPY lower. Japanese authorities continue to state their readiness to intervene if the yen weakens excessively.

Thanks to this combination of fundamentals, the yen strengthened nearly 200 pips against the dollar today, toward the base of the 154 area.

However, when considering short positions in the pair, one should account for possible headwinds. Hawkish expectations about further Federal Reserve actions have also strengthened — especially after the August US labor report. The US economy added 162,000 jobs (after July's +21k), unemployment remained at 4.1%, and the labor force participation rate rose from 61.4% to 61.6%. The report was strong enough to put a Fed hike back on the table for September.

For this reason, the next turning point for USD/JPY will be US inflation. If the PPI and CPI reports due Thursday and Friday print in the "green zone," the balance could shift again — this time in favor of the dollar.

Also remember the carry-trade dynamic. Even if the BOJ hikes, the yield differential between the US and Japan will remain significant. If the Fed also raises rates in September and signals the tightening cycle is not over, dollar funding and carry trades will remain attractive.

Thus, in my view, the current USD/JPY decline is not the start of a long-term downtrend but a deep correction after a prolonged rise. Therefore, after the southbound impulse subsides, it makes sense to consider long positions again: although the yen will likely retain a short-term advantage, the pair's further dynamics will depend on the relative pace of BOJ tightening and the strength (or acceleration) of US inflation. In the current situation, US CPI and PPI can determine whether the yen remains "in play" for the long term or whether this advance is merely another corrective episode.

From a technical standpoint, on the four-hour chart the pair sits between the middle and lower Bollinger Bands and below all Ichimoku lines, which have formed a bearish "Parade of Lines" signal. The near-term downside target is 153.90 (the lower Bollinger Band on H4). If the downward impulse begins to fade in this area, it can be considered a potential entry point for long positions.