The original text is fromStephen Innes

Translation｜Express Courier @ Odaily Planet Daily

The third time is often the charm, and in the foreign exchange market, this situation occurs more frequently than people imagine.

• The third test is not necessarily easier to break through just because it is the third time. What truly makes this level significant is the successful defense in the first two attempts. The change lies in what begins to accumulate around it: more traders recognize this line, more positions build against it, more stop losses accumulate behind it, and more breakout traders wait on the other side.
• This is not a statistical law, but this thought has lingered in my mind since my early days trading USD/JPY at a Japanese bank. The chief trader then was superstitious about round numbers and repeated tests, to the point that I nicknamed him the “Tokyo Round Number Prophet.” He believed that a decent third test is often the key; and once the important level of USD/JPY finally breaks, the market rarely looks back, until the underlying mechanism itself begins to lose momentum. Dark Side of the Boom.

USD/JPY finally broke below 155 on September 7, after successfully defending around the same region twice post-Golden Week intervention and again after the end of July's intervention. By the morning trading of September 8, the currency pair had dropped below 154.50; once the market breaks around 155.50—the level marking the low after the two intervention events—another yen level rapidly disappears.

This is exactly why this break is more significant than surface volatility.

The market remembers levels, especially those that have been defended multiple times. The first test can be considered noise and ignored, the second begins to build conviction, and by the third time, the market has often accumulated enough positions around the idea that "the bottom will hold again." When it finally breaks, the move can accelerate because traders are not just reacting to new information; they are also unwinding the confidence built around that level.

This seems to be the case this time.

It remains difficult to precisely judge the direct catalyst for this recent sharp drop, but since the middle of last week, the macro narrative behind the yen has clearly changed, with multiple forces now pushing in the same direction.

The first is Washington.

U.S. Treasury Secretary Scott Bessent's comments on Japanese fiscal and monetary policy have become increasingly firm. He has asserted before and after the G20 that Japan should abandon its reflation stance, expressing confidence that the Japanese government and BOJ (Bank of Japan) will take measures that ultimately strengthen the yen.

The timing is notable, as various Japanese departments have just submitted fiscal year 2027 budget requests totaling around 143 trillion yen, significantly higher than the initial budget of about 122 trillion yen for this fiscal year, further reinforcing the impression that Japan's fiscal backdrop remains highly expansionary. Bessent's comments may have coincided with the release of this data, but in the market, timing is often as important as intent.

Information received by overseas investors is quite direct: Washington wants a stronger yen, and Tokyo's room to ignore this preference may be less than in the past.

This view is further reinforced by reports that Bessent expressed dissatisfaction with Japanese economic policy during his visit in May, and the market generally believes that the coordinated intervention at the end of July was conducted in cooperation with the U.S. The accuracy of each detail of this story is almost secondary; what matters is that it provides global investors with a political framework, allowing them to anticipate that Japan will shift away from the reflation policy mix—precisely the mix that has long helped suppress the yen.

The second factor is the BOJ itself.

Bessent met with Governor Kazuo Ueda on the sidelines of the G20, and the U.S. Treasury subsequently emphasized the importance of communication on monetary policy, inflation expectations, and avoiding excessive currency fluctuations. Ueda then stated that each meeting will fully discuss interest rate hikes, including the next one, keeping the September 17 to 18 meeting firmly within the realm of possible interest rate hikes.

BOJ policy board member Hajime Takata further pushed this shift, advocating that the central bank should be ready to raise rates flexibly rather than be constrained by the pace already anticipated by the market. He later downplayed the possibility of major action at the next meeting, but by then, the market had already absorbed the most critical parts of the information: the BOJ may be willing to act faster than investors previously assumed.

This is important because bullish positions on USD/JPY have been built on a very comfortable foundation throughout most of the summer: U.S. rates remain high, Japanese rates remain low, arbitrage trades are profitable, and a rebound in the yen is hard to sustain.

Now, this policy gap may be closing from both ends.

The third leg of the story is less certain, but the potential impact could be much greater.

Speculation around possible changes in the asset allocation of the Government Pension Investment Fund (GPIF) has resurfaced. The GPIF manages approximately 300 trillion yen, meaning that even a moderate shift toward domestic financial assets could have a significant impact on the Japanese market and the yen.

This issue emerged in July when Finance Minister Satsuki Katayama stated that the government hopes to explore ways to encourage the GPIF and other pension funds to increase investments in Japanese financial assets. After a GPIF council meeting on August 21, market interest reignited, with later agendas showing discussion of the Basic Portfolio Review Project Team.

It is reported that this is the first council meeting held in August in seven years, which only adds more speculation to the market.

At this point, no one knows if a meaningful allocation adjustment will actually take place. Discussion details may not be released for months. But the market does not always wait for certainty, especially when the relevant institutions manage 300 trillion yen.

The possibility of capital flowing back to Japan is in itself enough to create an impact.

And at the time it appears, the dollar side of USD/JPY is starting to seem less compelling.

The August employment report was strong, with nonfarm payrolls increasing by 162,000, enough to restore some expectations regarding the probability of another rate hike by the Federal Reserve. However, the dollar reacted surprisingly tepidly, which itself is a useful signal. Such strong nonfarm data is typically expected to push the dollar higher, especially when the market is already discussing a September rate hike.

On the contrary, the dollar struggled to gain momentum.

Partly because Federal Reserve officials, including Christopher Waller, have clearly stated that they want to see the CPI on September 11 before making a final judgment. Wage growth year-on-year also slowed to 3.1%, continuing a gradual downward trend, and weakening the urgency of the argument that "the labor market is generating new inflationary pressures."

Therefore, while the nonfarm data reinforced the case for a rate hike, it did not seal the deal.

The CPI still holds the deciding vote.

President Trump has also been vigorously pressing in the opposite direction, calling for lower interest rates and threatening to take illogical, Trump-style actions if the Federal Reserve refuses to cut rates. Given the current data, it will be extremely difficult to justify a rate cut at next week's meeting, but the political message is clear enough: the White House does not want another round of tightening.

This helps to restrain the dollar; meanwhile, Japan's unique factors are beginning to favor the yen, which is why this round of movement feels different from previous intervention-driven rebounds.

Now the pressure comes from both ends of this currency pair: Japan is becoming more hawkish, or at least is perceived that way by the market; while the support coming from one of the dollar’s previous strongest arguments is waning.

Technically, breaking below 155 is significant because USD/JPY has also fallen below the 38.2% retracement level of the rise from the low above 139.50 in April 2025 to the high just below 164 in July 2026. This brings the low below 152.50 in January and the 50% retracement area above 151.50 into view.

If the long positions built around the old arbitrage mechanism continue to unwind, this currency pair has further downside potential.

Unless USD/JPY can quickly rebound above 155, the market may begin to view old support as new resistance. That would be a significant shift, but it would not automatically equate to a complete trend reversal.

Many of the factors driving the recent yen movement are based on expectations that have yet to be fully tested: BOJ taking action more quickly, reduced reflationary tendencies in Japanese policy, the potential for GPIF to repatriate funds, Washington's preference for a stronger yen, and the Fed not making a substantive shift toward a more hawkish stance.

Thus, the third attempt has finally broken below 155, which is noteworthy.

But the bigger question is: has the market just kicked open a stubborn technical door, or has Japan really begun to change its policy framework on the other side? In the forex market, these are two entirely different trades.

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