Forex week in review 36/2026: the yen breaks free of 160

Last week the story was the Fed. This week it was Japan. USD/JPY opened above 160, made a high near 160.39, and then fell almost five yen to touch 155.28 on Thursday before closing the week at 156.22, down 2.4%. Reuters described it as the yen's strongest week in more than a month. The dollar itself was mixed: it fell against the yen, the Australian dollar and the euro, but held its ground against sterling and the Swiss franc. And on Friday a blowout US jobs number reminded everyone that the Fed's September decision is still very much alive.

The key idea for this week is that a currency pair has two sides. A week ago US rates did all the work. This week, Japanese rate expectations did. When the Bank of Japan looks more likely to raise rates, the gap between US and Japanese yields narrows from the Japanese side, and USD/JPY can fall even while US data are strong. Our guide to central banks and interest rates explains how that rate gap works.

The backdrop: 160 and a lot of pressure

At the end of last week USD/JPY had climbed back above 160 after Fed Chair Kevin Warsh's hawkish Jackson Hole speech. That happened on the same day Japan's Ministry of Finance confirmed it had spent a record ¥15,399.3 billion supporting the yen between 30 July and 26 August. CNBC reported that the United States had also confirmed its participation in a coordinated operation in late July. In other words, two governments had spent heavily and the pair was right back where it started.

Over the weekend, US Treasury Secretary Scott Bessent met BoJ Governor Kazuo Ueda at a G20 meeting. According to Reuters and CNBC, Bessent said he believed Japan's government and the BoJ would take action that would lead to a stronger yen, and he expressed support for Japan's steps to address what he called the yen's undervaluation. That set the tone for the week.

Day by day

Monday 31 August

UK markets were closed for the summer bank holiday, which thinned liquidity in European hours. The dollar eased: the dollar index finished around 99.43 from 99.70 on Friday. Reuters reported the euro up 0.16% at $1.1602 and sterling a touch higher around $1.3543. USD/JPY hovered near 160.

Tuesday 1 September

Three things happened. First, Eurostat's flash estimate showed euro-area inflation jumping to 3.3% in August from 2.9% in July, mainly on energy. Second, the ISM manufacturing index fell to 54.6 from July's 55.6, which had been close to a four-year high, and below the 55.2 consensus. The sector still expanded, for an eighth straight month according to ISM. Third, BoJ Governor Ueda said a rate hike would be debated at the September meeting.

Despite all that, the dollar index closed slightly higher around 99.67, the 10-year Treasury yield reached its highest since November 2023, and USD/JPY made its high of the week near 160.39. FXStreet reported that the market had priced around a 70% chance of a Fed hike on 1 September.

Wednesday 2 September

BoJ board member Hajime Takata said the central bank should raise rates "nimbly" in response to rising inflation, and suggested moves could be faster or larger than the recent pace. The yen rose about 1% on the day, according to CNBC, prompting talk of intervention. ING's Chris Turner doubted that it was official, noting no sign of the disruption in electronic trading systems that usually accompanies intervention.

The Bank of Canada held its policy rate at 2.25%, as expected. Australia's second-quarter GDP grew 0.4% on the quarter and 2.1% on the year, beating forecasts according to Reuters, which helped the Australian dollar.

Thursday 3 September

This was the big day. The yen rose more than 2% against the dollar, touching 155.28 per dollar according to CNBC, its strongest level since 3 August. Atsushi Mimura, Japan's vice finance minister for international affairs, said authorities were "neither satisfied nor reassured" and remained "on a state of heightened alert". Robin Brooks of the Brookings Institution was quoted by Reuters saying: "If it looks like intervention, it is intervention."

But it was not. Japan's Ministry of Finance published its next monthly figures on 30 September, and they showed zero intervention between 27 August and 28 September. Takuji Okubo of Japan Macro Advisors had told CNBC on the day that the move was more likely a reaction to Ueda's comments than stealth intervention, and he turned out to be right.

On the US side, Fed Governor Christopher Waller said "recent data suggest we are finally seeing some signs of disinflation", and signalled he could support holding rates if data keep easing. That was noticeably softer than Warsh a week earlier. Reuters reported the dollar index down 0.7% at 98.91 in the afternoon, EUR/USD up 0.4% at $1.1632, AUD/USD up 0.5% at $0.7206, and USD/CAD down 0.4% at 1.3787. Gold futures, which had fallen to 4,329 on Wednesday, rebounded to close Thursday near 4,540.

Friday 4 September: payrolls

Before the release, Reuters said the yen was clinging to its gains and on track for its strongest week in over a month. Fed funds futures priced roughly a 50% chance of a September hike.

Then the numbers: non-farm payrolls rose 162,000 in August against a consensus of about 56,000. July was revised from -23,000 to +21,000, and the two-month net revision was +55,000. The unemployment rate held at 4.1%, as expected. Average hourly earnings rose 0.3% on the month and 3.1% on the year, a tenth above forecasts. The participation rate rose to 61.6% from 61.4%.

There was, in the words of one InvestingLive writer, "a big US dollar bid in the aftermath". EUR/USD dropped from about 1.1623 to 1.1591, USD/JPY rose from around 156.1, and the two-year Treasury yield climbed to its highest since January 2025, around 4.38% according to CNBC. The same writer pointed out that roughly 93,000 of the 162,000 jobs came from education and restaurants and bars, a reminder that the headline is never the whole report.

By the close the initial dollar bounce had faded against the euro. EUR/USD ended at 1.1621 and USD/JPY at 156.22. The dollar index closed the week at 99.16, down about 0.5%.

Pair by pair

USD/JPY: 160.10 to 156.22

The pair opened at 160.10 and closed at 156.22, down 2.42%, with a range of more than five yen. Three points are worth taking from it.

First, the drivers were Japanese: Bessent's weekend comments, Ueda on Tuesday, Takata on Wednesday. The US data were, if anything, dollar-supportive by Friday. Second, the move was large precisely because so many traders were positioned the other way. When a crowded trade starts to unwind, stops get triggered, which forces more buying of yen, which triggers more stops. Third, a move that looks like intervention is not always intervention, and acting on a rumour of official action is a gamble on information you do not have.

If you hold a position like this overnight, the interest rate gap also shows up in your account directly through overnight financing. Our swap and overnight financing guide explains why a long USD/JPY position has typically earned positive swap while a short one has paid it, and why that does not protect you against a five-yen move.

EUR/USD: higher on ECB expectations

EUR/USD opened at 1.1589 and closed at 1.1621, up 0.28%. The 3.3% inflation print reinforced expectations that the ECB will raise rates by 25 basis points on 10 September. Reuters said on Thursday that the hike was widely expected. When both central banks look set to hike, the pair tends to trade in a range, because each side's rate expectations offset the other. That is exactly what happened: a weekly range of about 1.157 to 1.164.

GBP/USD: going nowhere

Cable opened at 1.3537 and closed at 1.3517, down 0.15%. With no major UK data and a holiday on Monday, sterling was a passenger. That is a useful contrast with the yen: the size of a currency's move tends to track how much news there is about that country's interest rates.

AUD/USD: GDP helps

The Australian dollar opened at 0.7164 and closed at 0.7205, up 0.57%. The second-quarter GDP beat helped, and FXStreet noted the Aussie had closed higher in eight of the previous ten weeks. With the RBA cash rate at 4.35%, the Australian dollar has one of the highest policy rates among the majors.

USD/CHF and NZD/USD

USD/CHF rose to 0.8157 on Tuesday and then reversed to close at 0.8090, almost exactly where it opened. NZD/USD was weaker, falling from 0.5917 to 0.5882.

Gold

Comex gold futures opened at 4,483.20 and closed at 4,476.60, almost unchanged. The week's range was 4,329 to 4,558.50. Rising yields pulled gold down early in the week; the softer dollar on Thursday pulled it back up.

Why the payrolls report mattered more than the dollar showed

On the face of it, a 162,000 payrolls print against 56,000 expected should have been a big dollar day. EUR/USD fell only about 30 pips before recovering. Why?

Two reasons. First, the market had already been primed for a hawkish Fed by Warsh, so a strong labour market confirmed rather than changed the picture. Second, other currencies had their own rate stories: the ECB and BoJ were both expected to hike within weeks. When every central bank is hiking, a strong US number narrows the gap less than it would if the others were standing still.

The guide on how economic data moves forex explains the general rule: a release moves the market by the size of the surprise relative to what is already priced, not by how good or bad the number looks on its own.

Here is a worked example of why the revisions matter too. Suppose the market had mentally banked July at -23,000 and was expecting +56,000 for August. That implied about 33,000 jobs over two months. The actual two-month total became 21,000 + 162,000 = 183,000, a difference of 150,000. The headline surprise was 106,000, but the total surprise including revisions was bigger. Traders who looked only at the headline underestimated how much the labour picture had changed.

What this week teaches

1. Look at both sides of the pair. USD/JPY fell 2.4% in a week of strong US data. The driver was Japanese rate expectations.
2. Rumours of intervention are not evidence. The Ministry of Finance data later showed no intervention at all. Officials' warnings and sharp moves can coexist without the state being in the market.
3. Crowded trades unwind fast. When nearly everyone is positioned for one direction, a modest change in the story can cause an outsized move. Put your stop where the trade idea is wrong, and size the position to that distance; our guide to where to put a stop-loss covers this.
4. Read the whole jobs report. Revisions, wages and participation all moved this week, and the composition of the jobs gain was uneven.
5. Big ranges mean big risk. A five-yen weekly range on USD/JPY is about 3%. At ESMA's 30:1 retail cap for majors, a 3% adverse move is close to the entire margin on a full-sized position. Most retail CFD accounts lose money, and weeks like this show how quickly it can happen. Our leverage and margin guide explains the arithmetic.

Scheduled next week (7–11 September)

Events on the calendar for the coming week, listed for planning only:

• Monday 7 September: US markets closed for Labor Day.
• Tuesday 8 September: Japan's revised second-quarter GDP and July wage data.
• Wednesday 9 September: China August CPI. The US Treasury's enlarged long-dated bond buyback operations are due to begin around this date.
• Thursday 10 September: ECB policy decision and press conference with new staff projections. US producer prices for August and weekly jobless claims.
• Friday 11 September: US consumer price index for August, the last major inflation release before the Fed's 15–16 September meeting. UK monthly GDP and trade data.
• During the week: US Treasury auctions of 3-year, 10-year and 30-year debt.

New to reading a calendar like this? See how to use an economic calendar. For last week's Jackson Hole story, see our 24–28 August recap.

Sources

• CNBC: Japanese yen surges as BOJ rate bets and intervention talk grow (3 Sep 2026)
• Reuters via Investing.com: yen soars to one-month high amid intervention, rate hike chatter (3 Sep 2026)
• Japan Ministry of Finance: foreign exchange intervention, 27 August – 28 September 2026
• InvestingLive: US August non-farm payrolls +162K vs +56K expected (4 Sep 2026)
• Reuters via The Daily Guardian: yen headed for strongest week in a month (4 Sep 2026)
• Eurostat: euro area annual inflation up to 3.3% (flash, 1 Sep 2026)
• InvestingLive: US manufacturing PMI 54.6 versus 55.2 estimate (1 Sep 2026)
• Bank of Canada: interest rate announcement (2 Sep 2026)
• FXStreet: week ahead, dollar at a crossroads as CPI and ECB take centre stage (4 Sep 2026)
• FXStreet: forecasting the upcoming week (4 Sep 2026)
• Yahoo Finance historical price data (major FX pairs, gold futures, dollar index)