The FX Trader: The JPY Rally’s Next Objectives
Author: John J. Hardy, Global Head of Macro Strategy
Date: September 8, 2026
Summary
The Japanese yen (JPY) has entered a significant rally, marking its fifth consecutive day of strengthening, which is the most persistent move observed in over a year. This rally is attributed to several factors, including a more hawkish stance from the Bank of Japan (BoJ) and indications from Japan's Government Pension Investment Fund (GPIF) regarding a reallocation towards Japanese bonds. Recent investment flows into Japan have also shown increased confidence, as evidenced by a drop in yields for both 10-year and 30-year Japanese government bonds (JGBs).
Market Dynamics
The yield spread between German and Japanese 10-year bonds has widened significantly, indicating a growing confidence in Japan's bond market compared to Europe. The current movement of the yen from levels above 160.00 to around 153.00 suggests that the rally may be nearing its peak, with potential targets around the 150.00 mark. A stable yen around this level could lead to a more technical and two-way market for JPY crosses.
Technical Analysis
In terms of technical indicators, the EURJPY has experienced a sharp sell-off, reaching new lows for 2026. The recent bearish confirmation in the Ichimoku chart indicates a potential breakdown through the kumo (cloud), which would require significant movement. Key levels to monitor include the 2024 high just above 175.00 and the 2008 top at 169.95. A long-term fair price for EURJPY is estimated to be between 170.00 and 155.00.
US Dollar Outlook
The US dollar (USD) is currently lacking direction, particularly following a mixed jobs report. The market's focus is shifting towards the upcoming US August Consumer Price Index (CPI) data, which could influence the Federal Reserve's decisions at the September FOMC meeting. The EURUSD pair appears range-bound, with significant levels at 1.1700 and 1.1500, while the downside could extend to 1.1325.
Other Currency Movements
Other notable movements include a rebound in the EURSEK, likely due to rising European yields, and the AUDNZD testing levels above 1.2300 for the first time since 2013, driven by rebounding metal prices and a weaker NZD following a less hawkish stance from the Reserve Bank of New Zealand (RBNZ).
Conclusion
The current strength of the Japanese yen is notable, with potential for further gains despite the likelihood of increased volatility. The market remains sensitive to upcoming economic data, particularly from the US, which could significantly impact currency movements.