Today’s Market Outlook
1 September 2026
USD/JPY Recovers the 160 Level
U.S. Rate-Hike Expectations and Higher Oil Prices Support the Dollar, While BOJ Tightening and Intervention Concerns Cap the Upside
Market Summary
The FX market has no shortage of catalysts, yet direction remains difficult to establish as rising U.S. and Japanese interest rates offset one another.
Following hawkish remarks from Fed Chair Warsh last Friday, market pricing for a September U.S. rate hike has risen above 65%. The U.S. 10-year Treasury yield has also climbed into the 4.78% range, supporting dollar buying today.
By midday in London, USD/JPY had risen to around 160.14, setting a new intraday high.
At the same time, expectations of further policy tightening are growing in Japan. The yield on newly issued 10-year Japanese government bonds briefly reached 3.00%, its highest level in around 30 years, making it difficult to sell the yen in one direction.
USD/JPY is currently being shaped by the interaction of:
・Dollar buying driven by U.S. rate-hike expectations and higher U.S. yields
・Yen buying driven by BOJ rate-hike expectations and rising Japanese yields
・Intervention concerns above 160
USD/JPY
USD/JPY broke above its recent range in the 159 area and rose toward 160.14 in London trading.
Higher U.S. 10-year yields, inflation concerns caused by rising oil prices, and Fed Chair Warsh’s hawkish stance are supporting the pair.
On the upside, the key question is whether USD/JPY can break clearly above the day’s high near 160.14. Above that, 160.50 and then 161.00 are likely to come into focus.
However, intervention concerns tend to intensify above 160. U.S. Treasury Secretary Bessent has repeatedly encouraged the BOJ toward policy normalization, and coordination between Japanese and U.S. officials was confirmed at the G20. This makes it difficult to build aggressive new yen-selling positions.
On the downside, the first key point is whether USD/JPY can hold above 160. If it falls back below 160 and is pushed into the upper 159 range, the latest rise may prove temporary.
The Tug-of-War Between U.S. and Japanese Yields
The U.S. 10-year Treasury yield is in the 4.78% range, while Japan’s 10-year yield briefly reached 3.00%.
Higher U.S. yields alone support USD/JPY, but Japanese yields are also rising. As a result, the Japan-U.S. yield differential is not widening in one direction.
If higher Japanese long-term yields are linked to expectations of additional BOJ rate hikes, they may support yen buying. However, if the rise is viewed mainly as Treasury selling driven by concerns about fiscal expansion, higher yields may not lead to yen appreciation.
It is therefore necessary to assess not only yield levels, but also the reasons behind rising yields.
Middle East Developments and Oil
The exchange of attacks between the United States and Iran has flared up again for the first time in around a month, pushing NY crude futures briefly into the $87 range. Prices remain elevated in the $86 range.
If higher oil prices continue, markets are likely to focus on the following sequence:
Higher oil prices
↓
Concern about renewed inflation
↓
Higher U.S. rate-hike expectations
↓
Higher U.S. yields
↓
Dollar buying
On the other hand, if Middle East tensions deteriorate further, falling equities and safe-haven yen buying could intensify, limiting USD/JPY’s upside.
In the short term, rising oil is supporting the dollar. However, during an escalation of geopolitical risk, higher USD/JPY should not be assumed automatically.
Euro
The euro is soft in early London trading.
August manufacturing PMIs from Spain and Italy both fell below 50, the threshold separating expansion from contraction, increasing concern about the euro-area economy.
Key levels are:
・EUR/USD: around 1.1592
・EUR/GBP: around 0.8565
・EUR/JPY: around 185.50
The euro-area preliminary August HICP is also due today.
If inflation exceeds expectations, expectations of ECB tightening may support euro buying. Conversely, if concern over weakening PMIs dominates, EUR/USD may fail to recover 1.16 and test lower levels.
U.S. ISM and JOLTS
The focus later today will be on the U.S. August ISM Manufacturing Index and July JOLTS job openings.
Market expectations are:
・U.S. ISM Manufacturing Index: 55.2
・Previous: 55.6
・U.S. JOLTS Job Openings: 7.313 million
・Previous: 7.350 million
If both ISM and job openings exceed expectations, the resilience of the U.S. economy and labor market may be confirmed, potentially driving rate-hike expectations, U.S. yields, and USD/JPY higher.
Conversely, if both indicators fall short of expectations, the rate-hike expectations that increased after Chair Warsh’s speech may fade, leading to a correction in USD/JPY below 160.
If the results are mixed, USD/JPY is likely to remain volatile around 160.
Key Events Today
・Euro-area preliminary August HICP
・Final August manufacturing PMIs from major European and U.S. economies
・U.S. August ISM Manufacturing Index
・U.S. July JOLTS Job Openings
・U.S. July Construction Spending
・Speech by Fed Governor Barr
・Comments from G20 officials
・Middle East developments involving the United States and Iran
・NY crude futures
・Japanese authorities’ response to USD/JPY above 160
Summary
USD/JPY rose toward 160.14, supported by U.S. rate-hike expectations, rising long-term U.S. yields, and higher oil prices.
However, Japan is also seeing rising expectations of further BOJ rate hikes and higher long-term yields, while intervention concerns are intensifying above 160. Therefore, even with abundant dollar-supportive factors, USD/JPY may continue to struggle to move higher in one direction.
The key focus later today is whether U.S. ISM and JOLTS data will strengthen expectations of a September rate hike further.
Strong results could support a sustained move above 160 and additional upside. Weak results could trigger a correction below 160. Monitor U.S. yields, oil prices, and remarks from Japanese and U.S. officials alongside the data.
